Manufacturing Is Becoming More Aggressive In Outsourcing

April 6, 2007
Almost 40% will expand into new geographies or business units.

Automotive, manufacturing and high-tech sectors are more aggressively outsourcing their back-office information technology and business processes in order to reduce costs and improve their performance according to a study released by EquaTerra.

These three industries have traditionally used IT outsourcing such as call centers, customer relationship management and finance and accounting, as well as contract manufacturing, logistics, application development and engineering, EquaTerra noted. Now they are all embracing back-office IT outsourcing (ITO) and business process outsourcing (BPO) says EquaTerra based on its research of North American companies.

"Extreme levels of product innovation and operational efficiencies are prerequisites for North American firms to remain competitive in these industries against lower-cost emerging market rivals," said Stan Lepeak, managing director of research for Houston, Texas-based EquaTerra. "Pressure has long been on production and blue-collar labor to become more competitive. Now that same pressure is on white-collar labor in back-office operations."

The increasing demand was highlighted in the study findings regarding future outsourcing investment plans, which found:

  • 32% of manufacturing and related organizations that had outsourced one or more process areas planned to expand outsourcing into new process areas.
  • 38% planned to expand outsourcing into new geographies or business units.
  • 29% planned to expand existing outsourced process areas.

In terms of measuring outsourcing success, 67% of companies surveyed in these industries identified cost reductions as the key means of measuring outsourcing success. Measuring customer satisfaction levels ranked second, cited by 46% of respondents, with improved process performance levels coming in third at 31%.

In EquaTerra's analysis, outsourcing to lower-cost markets such as India or China can help companies enter those markets to sell their own goods and services. Smaller markets such as Central and Eastern Europe, however, will most likely remain primarily a source of services.

Companies will also see opportunities to outsource less-common process areas such as warranty services, service after sale, document service and forms of "knowledge process outsourcing" (KPO) such as R&D and analytics, says EquaTerra.

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