Outsourcing R&D and product engineering sounds like heresy to many manufacturers, but it has become common practice at others. As manufacturers leave no stone unturned in their search for ways to streamline operations and reduce costs, they are rethinking nearly everything about outsourcing, including:
- What can be outsourced?
- How can services be delivered?
- How should service provider relationships be managed?
- Are existing contract terms and performance metrics enough to drive desired business outcomes?
The answers to these questions have likely changed since you signed your last outsourcing contract and will shape the scope, scale and success of future engagements. By understanding how conditions are changing, you can work the changes to your favor.
Market Momentum
At the start of 2009 manufacturers faced serious questions about how they could succeed in an environment marked by unprecedented global competition, little liquidity and the modern recession. As 2009 went on, they increasingly found the answer in outsourcing. Manufacturers signed contracts to outsource more than $10.4 billion worth of IT and business process services in the last six months of 2009, nearly double the amount of the first half. The trend was mirrored in other industries -- there were more outsourcing contracts signed globally between September and December 2009 than during any other quarter in history.
All signs point to even more outsourcing in 2010, and manufacturing is expected to be a leading segment. There are $15 billion worth of existing information technology outsourcing (ITO) and business process outsourcing (BPO) contracts due to expire this year, a 41% increase from 2009, so outsourcing service providers have a lot at stake. They're dealing with the recession, too, (despite the second-half surge, 2009 was a down year for outsourcing), and will work harder and more creatively to win your business.
It's All on the Table
Not only are manufacturers expanding their outsourcing activity, but renegotiation of existing contracts is also on the rise. There were a number of large, global outsourcing contracts signed over the past 10 years that brought promises of significant savings, improved service and increased flexibility. During the past year, however, there been a significant movement toward reevaluating and renegotiating these contracts.
Service providers are accustomed to going back to the table to discuss how additional cost savings or service performance can be improved and are prepared to make practical suggestions. Here are some of the trends and new thinking that are driving outsourcing engagements in manufacturing today.
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