Why Outsourcing is Hot in the Manufacturing Sector | Article

cogs of outsourcingDuring National Manufacturing Week 2004 in Chicago (February 23-26), the National Association of Manufacturers predicted US manufacturing production will increase by more than six percent this year. Headlines also declare that manufacturing growth in the UK is at a four-year high, and demand is strong in Australia. Consumer spending is on the rise; but so is the competition in the manufacturing arena.

“Companies are facing intense competitive pressures and being challenged to innovate, introduce new products, and expand into new markets,” states Romala Ravi, program manager, BPO Services, at IDC, a leading global market intelligence and advisory firm.

Outsourcing is increasingly the strategic business solution of choice to position manufacturing firms for growth. IDC, a subsidiary of IDG, an IT media, research, and event company, predicts significant worldwide growth in 2004-2005 in manufacturers’ adoption of business process outsourcing (BPO), as indicated in the figure below.

BPO Growth Rates

According to IDC, the top three growth areas for BPO in manufacturing are engineering (product design and development functions), logistics, and finance and accounting (F&A).

The goal of decreasing time to market is driving manufacturers to outsource engineering processes. “Today’s shorter product lifecycles, technological obsolescence, rapid technology advances, and the increasing complexity of design and engineering are challenges to time to market,” says Ravi.

An increasing reliance on a global supplier base, a shift toward offshore manufacturing, and the development of multiple channels to market impact the logistics and supply chain functions. IDC’s research indicates that the role of logistics has been greatly elevated. “Success,” says Ravi, “now depends not just on what companies produce or how they leverage low-cost production but, more importantly, on whether they can actually get the right goods to the customer on time and cost-effectively.”

Finally, F&A outsourcing is increasing in the manufacturing sector because many discrete manufacturing firms have grown through acquisitions; many also have production or operational units located in various regions around the world. “Outsourcing is an effective solution for consolidating their disparate accounting systems and gaining transparency in business units’ financial operations,” states Anna Danilenko, IDC’s Program Manager for Consulting and F&A BPO Services.

Outsourcing in the manufacturing sector achieves increased productivity, new revenue generation, cost reduction, and business transformation – all adding up to increased shareholder value.

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