Backsourcing: Best Practices for Changing Directions

Want More?

Download the PDF

Want to stay up to date on the trends and issues impacting your supply chain?

I understand that Tompkins will only use this information to contact me about business opportunities. By completing this form I am confirming that I have read and accept the Privacy Policy.

This field is for validation purposes and should be left unchanged.

Contact Us

We would love to hear from you.
Call Us: 561-994-0012

Want to stay up to date on the trends and issues impacting your supply chain?

I understand that Tompkins will only use this information to contact me about business opportunities. By completing this form I am confirming that I have read and accept the Privacy Policy.

Published April 1, 2006

Share on:

Everyone knows about outsourcing and the benefits it can bring if handled properly. But what happens when there is a clear shift in your business that signals you should be doing an outsourced function yourself?

Backsourcing is bringing functions that were outsourced back into an organization. Like outsourcing, backsourcing is expensive and should only be done when a full investigation of the alternatives has been undertaken and the decision to backsource is clearly the right one. Of course, the best time to consider backsourcing is before you have outsourced, as it is the ideal time to lay the foundation for doing backsourcing well.

Unless there is a significant shift in the business that makes both the outsourcing and backsourcing decisions good decisions, the best way to avoid the resources spent on backsourcing is to never outsource in the first place. But let’s say the decision has now been made to backsource. Here are the Seven Best Practices of Backsourcing that should be considered.

1. Ask, Why Did We Outsource?

The first best practice of backsourcing is to understand why the functions were outsourced in the first place so that the decision to backsource can be appropriately evaluated.

Good reasons to outsource include:

  • The function was non-core and it was outsourced to allow adequate time to be spent on core functions.
  • The function was non-core and it was outsourced to capitalize on the efficiencies of an expert provider.
  • To reduce costs.
  • To access the provider’s state-of-the-art technology.
  • To improve customer satisfaction.
  • To obtain a competitive advantage.
  • To avoid capital expenditure.
  • To increase capacity.

Once these reasons to outsource are understood, then it is time to evaluate how outsourcing did or did not meet your objectives. The obvious choices to be made at this point are:

  • Stay the course and continue to use the same provider.
  • Alter the course and have a new beginning with the same provider.
  • Alter the course and move to a new provider.
  • Backsource the function and bring it in-house.

Do a full review of the above reasons, and only when a clear justification of backsourcing is made should you act.

2. Consider All Legal Issues

A key consideration when making the backsource decision is what the contract says about removing the outsourced business from the provider. Is the term of the relationship complete? If it is, what notification period is required to remove the outsourced business from the provider? Have you met the notification requirements?

If the term of the contract is not complete, are there early termination penalties? Does the contract have a built-in exit strategy? Does the contract define a transition period, process, and strategy, and what are the duties and responsibilities of the provider? Is there contract guidance on confidential information, product protection, and insurance during transition? If terminating early, are there dispute resolution requirements that need to be addressed? It is quite clear that just as one must have early and significant support from counsel during outsourcing, so too is this support required during backsourcing.

3. Gain Clear Commitment

The decision to backsource should be made with the understanding that your organization has made a commitment to reinvest in this portion of your business. If this commitment is not clear, the backsourcing decision needs to be reevaluated. If lack of commitment by upper management was part of the reason for outsourcing, then ask what has changed that would now make backsourcing this operation a success.

Lack of commitment to provide the leadership, staff, equipment, facilities, systems, and capital to perform the outsourced function inside will doom the backsourcing to failure. There needs to be a careful and well-thought-out assessment of all resources required to successfully backsource. And remember that these resources may no longer exist since the outsourcing was implemented and may need to be obtained anew. There must also be adequate management assigned to oversee the backsourcing as well as to manage the functions once returned. Management and staff must be reassured that just because “we used to do this ourselves” that it will be easy to do it again.

4. Figure Out What Has Changed

Chances are very good that the systems, functions and processes you outsourced are considerably different than the functions and processes you backsource. Like all businesses, your organization continues to evolve and it would be highly unusual if your outsource requirements have not evolved as well. Therefore, one of the most challenging hurdles to clear involves fully investigating and understanding if the knowledge base you had of the outsourced function is still the knowledge base needed to backsource the function today. This requires a full review and documentation of the current requirements and the process design.

5. Plan, Plan, Plan!

The amount of planning required for successful backsourcing does not vary considerably from the amount of planning required for successful outsourcing. In fact, a book I wrote with three other professionals on how to outsource is as applicable to backsourcing as it is to outsourcing.* The process as it should be applied to backsourcing involves the following steps:

  1. Define your backsourcing team.
  2. Define the backsourcing requirements.
  3. Develop the backsourcing business plan and backsourcing schedule.
  4. Assess skills and readiness to successfully backsource.
  5. Establish a cooperative relationship with the current provider and define communication protocols.
  6. Clarify roles and responsibilities and the legal relationship with the outsource provider.
  7. Begin the phased approach of bringing the business back in-house.
  8. Maintain a relationship with the outsourced provider of teamwork, open communications, cooperation, and collaboration.
  9. Close out the relationship by handling all loose ends and details.

6. Communicate, Then Communicate More

Notify the outsource provider of your decision to backsource as early as possible and communicate in a way that begets a culture of cooperation. This timeframe may be considerable, and requirements of the business may need to be defined up to 18 months prior to the actual conversion. At the appropriate time, communicate to all constituents the goals, objectives, schedules, and plans of the backsourcing initiative. Do not naively believe that people will understand what is happening! Open, honest, and timely information is required by all to facilitate a smooth transitioning of the outsourced functions back in-house.

As George Bernard Shaw once wrote, “The problem with communication is the illusion that it has occurred.” Be certain that your communications hit home.

7. Focus Contingency Planning on Customer

Never, ever, ever forget about the impact backsourcing can have on the customer. Develop a contingency plan to cover as broad a set of business continuity issues as is realistic. The contingency plan must fully address customer needs and make the ongoing satisfaction of the customer a key objective. Ensure that the customer is fully briefed on the backsourcing initiative and participates in the development of contingency plans.

Conclusion: Minimize Risk with Expertise

Backsourcing, like outsourcing, has some real risks. Backsourcing, like outsourcing, must be done methodically and with true expertise. Failed backsourcing projects are extremely ugly and must be avoided. Given the reality that “the devil is in the details,” organizations need to approach backsourcing with respect and diligence. Your backsourcing initiative will be successful if you keep these thoughts in mind and follow the Seven Best Practices presented here.


Newsletter Signup


Sign up for our latest Insights and News.
Join over 50,000 others, it’s completely free!

I understand that Tompkins will only use this information to contact me about business opportunities. By completing this form I am confirming that I have read and accept the Privacy Policy.