So You Think You Want to Outsource Your IT?

July 11, 2008
Five key questions to answer before making the outsourcing decision.

Outsourcing key information technology (IT) functions is becoming increasingly popular for manufacturing companies, but the ultimate decision of whether to outsource still requires an in-depth evaluation of your in-house IT capabilities, notes Melinda Elmowy, vice president of global marketing for CargoWise edi, a provider of supply chain logistics management systems. "A company's cultural alignment and cross-departmental communications capabilities, especially as they relate to rapidly advancing technologies, will provide the deciding factors in determining whether it should keep supply chain management systems in-house or outsource them to an expert third party software provider," she advises.

According to Elmowy, companies should consider the following five strategies when deciding whether to outsource their information technology (IT) needs:

  1. Examine the status of your in-house IT capabilities. Elmowy suggests companies start by asking, "How state-of-the art is our current IT system?" If your company does not have optimal cross-departmental communications, it probably will not be able to provide the proper in-house operating platform to meet your customers' supply chain requirements, she notes. "You probably need to outsource your IT functions or lose customers." Companies should ask: "How do I remove the risk from IT projects and obtain outcomes that drive the business?"
  2. Determine your company's commitment to needed capital expenditures. Information technologies today are dynamic and advancing rapidly. You may find some company cultures simply do not support the type of commitment and budget necessary to provide optimal IT solutions for your customers. If this is the case, Elmowy suggests, you may have no choice but to outsource your IT process to a software provider rather than pay extra to add-on to an outdated legacy system -- which typically is far more expensive than simply outsourcing.
  3. Evaluate your company's ability to provide in-house training. "If your in-house tech support is unable to adapt to your growing supply chain needs and provide adequate training for new technologies, you should consider outsourcing your company's logistics data and integrating it with that of a service provider that specializes in customized supply chain solutions," she says.
  4. Compare IT costs to results. The fixed costs of building and maintaining a vibrant IT system in-house could be far more costly than outsourcing it to a software provider that is able to offer flexibility in responding to market dynamics, Elmowy advises.
  5. Understand the true metrics of IT ownership. "Most companies vastly underestimate the cost of providing in-house IT solutions," she observes. "If you are debating whether to develop or upgrade your in-house IT functions or outsourcing them, you should ask: What is the true total cost of in-house ownership of our IT operation?' Whatever your startup costs are, you can expect them to increase dramatically if you try to enhance your in-house system later with newer technology."

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