For three manufacturing companies with a worldwide view, outsourcing plays a starring role in their strategic moves to reduce costs and streamline operations while producing the best products for their customers.
The Tie to Cost-Effective Manpower
The largest automobile manufacturer in India, Maruti Udtog Ltd. (a division of Maruti Suzuki) produces half a million cars annually. But in the late 1990s, the company was facing rapid technological obsolescence; spiraling IT and support costs; increased pressure on recruiting skilled manpower and reducing high turnover; non-standard operational IT service levels and an unstructured approach to problem management.
Maruti Udtog, at that time, was performing all IT support services in-house; but Rajesh Uppal, the company’s chief information officer and general manager, IT, says it was always struggling and that “maintaining people resources for so many different things — hardware, software, networking, systems software — was a very, very big thing.” Because of the turnover, service levels were poor and not cost-effective.
The trouble in retaining IT manpower is not a problem one would expect to encounter in India – a nation brimming with top-notch skilled IT people. But that’s just it, says Uppal. “Those highly skilled people all leave and go to the United States for more money.”
Outsourcing IT support and management to Compaq Computer Corporation (now known as HP) turned the troubled situation into a highly successful operation. Compaq, at that time, had a strong presence in India with a wealth of IT skilled employees who are native. Thirty-five now provide onsite 24×7 services at Maruti Udtog.
Maruti Udtog retrained and reployed in-house IT staff elsewhere within the firm, and the work was transitioned to the outsourcer in a three-month timeframe. The 1999 contract has been renewed annually. Today, Maruti Udtog possesses 65 percent of market share in its domestic market, uses world-class best practices and program management, has greatly improved customer satisfaction and achieves a higher return on investment (ROI) on its IT investments.
“Our competency is to manufacture cars, not manage IT,” states Uppal. “Now, no matter what the IT problem is our outsourcing partner resolves our problem.”
The Tie to Optimizing Purchasing
Within the manufacturing industry, where companies must purchase a considerable number of components and various goods and materials, operational costs can skyrocket in the procurement arena. So can the number of vendors for those supplies.
MAN Roland, who manufactures an extensive range of newspaper and digital Web offset printing presses, had an objective to reduce expenditures of its purchasing department and also to optimize its supply chain. Optimizing, says Rudolf Kohlert, the company’s purchasing director, meant reducing the number of vendors from which it purchased materials. They accomplished both objectives by outsourcing MAN Roland’s purchasing process to Unitec.
Kohlert says Unitec, headquartered in Germany, reduced the number of small (under 50 Euro per year) vendors used by MAN Roland from 160 to just one — Unitec. The service provider’s Web-enabled NetSourcing services coordinates MAN Roland’s orders for all vendors into one order form and has reduced invoices to just one per month — thereby reducing the manufacturer’s bookkeeping and processing costs.
Besides paperless purchasing, Unitec’s eProcurement service includes order status tracking and options for urgent delivery. The Web site’s database is comprised of more than 44,503 goods from 3,240 vendors, with multilingual descriptions.
In addition to the eProcurement services, Kohlert says MAN Roland selected Unitec as its outsourcing partner because of its expertise in C-parts management concepts and efficiency. The company’s Activity-Based Costing Analysis defined “C-parts” as those worth five percent of the total purchasing volume but having a high rate on purchasing orders.
MAN Roland transitioned the work to Unitec over a two-month period, in phases per different purchasing departments and groups of goods. MAN Roland’s return on investment was more than reduced costs; freed from administrative tasks, its purchasing staff was able to focus on more important activities.
The Tie to Product Information
Thomas Publishing is in the product information business. One of its best-known publications is the Thomas Register of American Manufacturers database, which contains information on thousands of manufacturing products in nearly 70,000 categories. It contains searchable information on more than 168,000 U.S. and Canadian manufacturers. First published in print and on CD Rom, the Thomas Register database moved to the Internet in 1995.
Monica Lavin, Thomas Publishing’s director of electronic services says it recognized the transition into eCommerce would be difficult. “Our clients (the vendors in the Thomas Register database) are small to medium-sized companies. Getting them to provide the database content is difficult in that size company,” Lavin explains. “Sometimes the marketing person is also the president of the company, and they generally don’t have the human resources to dedicate to a project like this. It takes time and a lot of handholding.”
Knowing the upcoming difficulties, Thomas Publishing outsourced the development of the Web site for Thomas Register to Inforonics, a service provider specializing in transforming businesses to an Internet model. Within three months (handholding included), the site was fully operational and became the first to present the entire contents of an industrial register on the Internet. One of the largest B2B exchanges in the world, it boasts 135,415 brands, 7,782 online supplier catalogs, more than a million CAD drawings, secure online ordering and is regarded as a technological leader in manufacturing research online.
“We knew we would have to think differently for eCommerce,” comments Lavin. “We’re a publisher, and technology is not our expertise.” After initial implementation, Inforonics continues to update, manage and supports the site. Even more important, according to Lavin, is the service provider’s knowledge beyond the technology aspects of eCommerce. “They understand the whole advertising model, how advertisers obtain position on the Internet, and how those things are interrelated with systems.” The outsourcer also responds “with urgency all around,” she states — an important service performance level for the competitive advertising arena.
Bound to Succeed
Because of their outsourcing strategies, these companies have put outsourcing strategies in place, tying their technology requirements and cost objectives to the expertise and resource strengths of world-class service providers. In doing so, they’ve found highly effective maneuvers, which focus their efforts on end results that enhance their competitive advantage.
Lessons from the Outsourcing Journal:
- Manufacturing companies often need a wide range of software and hardware skilled IT personnel to manage and support their infrastructure. Outsourcing IT processes is the most cost-effective means of handling the costly turnover.
- Outsourcing to an eProcurement provider can lower a manufacturer’s costs of purchasing goods and materials, as well as streamlining the order and invoice procedures.
- For an eCommerce service provider, choose an outsourcer that understands the buyer’s core business, as well as Internet technology.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].