Outsourcing is a bitter pill in a poor economy

Jan. 17, 2003

The risk assessment is complete. I expect to receive a good deal of grief from readers whenever I risk writing about outsourcing. However, it is a topic that can't be ignored today, regardless of the visions it conjures. Our companies can't ignore outsourcing as an operational option, and neither can we. The facts of life today demand new thinking to survive.

The first fact the economy still stinks. Manufacturing plants are not operating at capacity and downsizing has become the daily diet of every newspaper's business section.

The second fact companies still need to produce product, with fewer people and less in-house knowledge.

The third fact companies are still looking at ways to cut costs and increase profits, they are just looking in different places today. Most companies cut deeply into their infrastructures this past year, and there is little if no fat left in anyone's budget.

The fourth fact the only other way to save money and increase profits is to optimize plant assets and the manufacturing process.

The fifth fact this focus on the core functions of a manufacturing operation has forced managers in all areas to take a serious look at outsourcing non-core activities. In fact, some companies have taken outsourcing so seriously, they now have executives who focus on leveraging the outsourcing strategy, implementation and relationship management. They even have their own acronym, CRO, for chief resource officer.

The Outsourcing Institute recently completed the Fifth Annual Outsourcing Index, based on survey data from more than 1,000 outsourcing buyers. The study found the primary reason for outsourcing today is different than it was just two years ago. More than half the respondents said the key driver is the need to improve company focus. Reducing and controlling operating costs was a close second.

So what are the key areas managers are currently or considering outsourcing? I spoke with an executive of a global company the other week who told me his company will begin outsourcing their IT functions. The expertise, he explained, lay outside the company's core capabilities. Not only will this executive's company realize significant savings, but they will gain greater expertise from a supplier who lives and breathes IT, and will most likely enhance its customers' capabilities.

Facilities maintenance, plant security, fleet management, operations and maintenance are a couple of areas executives currently report outsourcing. Under consideration, according to the Outsourcing Institute, are facilities management, facilities maintenance and facilities information systems as well as warehousing, distribution, logistics and inventory management.

For more information on outsourcing, the Outsourcing Institute or the Index, go to www.outsourcing.com.

Change is constant. We must adapt to new situations and new demands in the workplace. Our ability to learn new skills and take on additional responsibility will be key to workplace survival.

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