The Future Of Outsourcing
How it's transforming whole industries and changing the way we work
Globalization has been brutal to midwestern manufacturers like the Paper Converting Machine Co. For decades, PCMC's Green Bay (Wis.) factory, its oiled wooden factory floors worn smooth by work boots, thrived by making ever-more-complex equipment to weave, fold, and print packaging for everything from potato chips to baby wipes.
[...]
The changes can be harsh and deep. But a more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its potential. The new buzzword is "transformational outsourcing." Many executives are discovering offshoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the U.S., not just cheap wages abroad. True, the labor savings from global sourcing can still be substantial. But it's peanuts compared to the enormous gains in efficiency, productivity, quality, and revenues that can be achieved by fully leveraging offshore talent.
[...]
The new attitude is emerging in corporations across the U.S. and Europe in virtually every industry. Ask executives at Penske Truck Leasing why the company outsources dozens of business processes to Mexico and India, and they cite greater efficiency and customer service. Ask managers at U.S.-Dutch professional publishing giant Wolters Kluwer (WTKWY ) why they're racing to shift software development and editorial work to India and the Philippines, and they will say it's about being able to pump out a greater variety of books, journals, and Web-based content more rapidly. Ask Wachovia Corp. (WB ), the Charlotte (N.C.)-based bank, why it just inked a $1.1 billion deal with India's Genpact to outsource finance and accounting jobs and why it handed over administration of its human-resources programs to Lincolnshire (Ill.)-based Hewitt Associates (HEW ). It's "what we need to do to become a great customer-relationship company," says Director of Corporate Development Peter J. Sidebottom. Wachovia aims to reinvest up to 40% of the $600 million to $1 billion it hopes to take out in costs over three years into branches, ATMs, and personnel to boost its core business.
By: Martha Garcia
Outsourcing
Outsourcing is growing at a rapid rate in the United States, Europe and Asia because organizations view outsourcing as a way to achieve strategic goals, reduce costs, improve customer satisfaction and provide other efficiency and effectiveness improvements. Like any organizational decision, outsourcing is not free of risk and requires effective management from the outset of the outsourcing evaluation through the life of the contractual relationship. This article outlines fifteen critical factors for successful outsourcing.
Outsourcing must be done carefully, systematically, and with explicit goals. Companies that rush into outsourcing without fully understanding what they hope to gain may find themselves mired in a contractual battle with a chosen vendor or the recipient of services that worsen rather than improve. Sensible reasons to consider outsourcing include both strategic and tactical concerns on both a department and organizational level.
Outsourcing is not an excuse to wash management's hands of a poorly managed, costly, or misunderstood function. Understand the costs of a function and manage it effectively before evaluating its potential for outsourcing. Otherwise, you are probably deciding to outsource for the wrong reason, you may be giving the outsourcing vendor gains you could have reaped, and you may be starting a relationship that is destined to fail.
Organizations should consider (or reconsider) the overall merits of selective outsourcing every three to four years. Revisiting outsourcing may be particularly relevant under changing market conditions or when internal, industry, or technology changes have occurred.
By: Liliana Valenzuela
Advantages and Disadvantages of Outsourcing
A big debate has been and still is going on across the globe where people are being affected by it. While business enterprises support outsourcing, employee unions and the politicians often oppose the same.
Outsourcing offers many advantages to the home countries business undertakings and also to the country wherefrom the services are being or will be provided.
1. Enjoy cost leadership: This is possible only when the cost is minimizedMost of the auto manufacturing companies buy components from outside and merely assemble them in their own factories, because it minimizes their cost of manufacturing.
2. Exercise a greater control over quality
3. Advantage of deferred payment
4. Save on interest payments apart from saving on godown charges and pilferage and wastage: No need to buy raw material and stock semi-finished products in their warehouses
5. Low headache of unionism: Number of people employed also gets reduced. Therefore, there is less number of employees.
6. Focus on core business and customer relationship management
7. Host country also benefits in macro-economic terms
Of the disadvantages of outsourcing, the most important argument is that it results in loss of jobs. The activities which were performed in home countries or organizations are transferred to other locations. The second disadvantage of outsourcing is that the labor rate gets a decline. Third, the trade unionism gets a jolt. Fourth, due to unemployment, the state has to pay allowances by way of unemployment dole. This all creates unrest in the society and the politicians often find their vote bank being annoyed. To the industry, in its persuit to reduce cost, quality may suffer.
By: Fabiola Anaya
Commitment, Consistency & Control to Successfully Outsource
Many companies – large and small, local and international, publicly traded and privately held – utilize outsourced relationships to improve their bottom line. Outsourcing service providers routinely extol and deliver the economic benefits of outsourcing: improved operations, lower costs and enhanced shareholder value. Many companies considering using an outsourcer are interested in more than money and the effect of outsourcing on the company balance sheet. These companies realize that while cost containment is critical, customer satisfaction, retention and employee morale are equally important to the bottom line. Too often, however, companies embarking on an outsourcing relationship find themselves reaping the financial benefits but struggling with the day-to-day management of the relationship between itself and the outsourcer.
It is important to know how to structure a successful outsourcing relationship – providing long-term cost savings while effectively dealing with the non-financial aspects of the relationship. Companies can help ensure a smooth running and rewarding outsourcing engagement by focusing on three "Cs" – commitment, consistency and control.
www.sourcingmag.com/content/c081013a.asp
It is important to know how to structure a successful outsourcing relationship – providing long-term cost savings while effectively dealing with the non-financial aspects of the relationship. Companies can help ensure a smooth running and rewarding outsourcing engagement by focusing on three "Cs" – commitment, consistency and control.
www.sourcingmag.com/content/c081013a.asp
By: Edgar Saenz
What is OUTSOURCING?
Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.
The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.
In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.
Some advantages of outsourcing are: concentration on core business areas; world-class technology at lower rates; Skilled manpower at affordable prices; Increased productivity; Beat Competition; Tax benefits
Some disadvantages can be: Loss of managerial control; hidden costs are difficult to calculate or prepare for; threat to security and confidentiality; loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings; unfavorable contract lengths, loss of competitive edge, problems in contract renewal, and contractual misunderstandings.
http://www.sourcingmag.com/content/what_is_outsourcing.asp
http://www.cyfuture.com/advantages-of-outsourcing.htm
http://www.cyfuture.com/disadvantages-of-outsourcing.htm
by: Carolina Santa Cruz
The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.
In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.
Some advantages of outsourcing are: concentration on core business areas; world-class technology at lower rates; Skilled manpower at affordable prices; Increased productivity; Beat Competition; Tax benefits
Some disadvantages can be: Loss of managerial control; hidden costs are difficult to calculate or prepare for; threat to security and confidentiality; loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings; unfavorable contract lengths, loss of competitive edge, problems in contract renewal, and contractual misunderstandings.
http://www.sourcingmag.com/content/what_is_outsourcing.asp
http://www.cyfuture.com/advantages-of-outsourcing.htm
http://www.cyfuture.com/disadvantages-of-outsourcing.htm
by: Carolina Santa Cruz
