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OPERATIONS

Getting a Fix on Outside Contractors

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Air Taser, a stun gun manufacturer in Scottsdale, Ariz., decided the best way to handle order fulfillment was to outsource. If you outsource any process, you'll find that good contracts make good partners. Here are five issues critical to any outsourcing contract that Air Taser founders Rick and Tom Smith addressed in their contract:

  • Pricing and compensation. Spell out how services will be billed. Will the customer pay by the hour? By unit of computing power? By number of items handled? Vendors should make provisions for changes in their own costs over the long term. Include payment schedules based on clearly defined criteria.
  • Description of services. Define every service in detail, and stipulate which side eats costs in case of problems. Vendors should specify tasks that are part of the core service and those that are extras.
  • Performance standards. Describe what metrics--transaction times, reporting cycles, and so forth--both parties will use to measure performance. Build in flexibility. These are long-term relationships, and the world is always changing.
  • Management contact. Small companies can't have every manager supervising outsourced relationships. So set up a mechanism or designate a special liaison who will keep the partnership on an even keel.
  • Escape routes. Plan for the end. When the relationship is over, what happens to inventory, equipment, and mailing lists? What must the vendor hand over to the new outsourcer or to the customer? How much notice must each party give before terminating service?



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