Typical outsourcing drivers for manufacturers include increased ability to focus on core business, reduction of cost and risk, improved quality, revenue growth, improved time to market and access to new technology. If management determines that additional labor resources are required, the key decision point is the source of additional labor resources: internal, external or a combination. One of the fastest growing options in outsourcing is the Onsite-Offshore model that combines economical offshore personnel with a locally based contingent.
The specific business processes or functionalities that a manufacturer will consider for outsourcing vary with vertical industry, company size, allocation of non-core business processes, control of intellectual property and numerous other factors. Outsourcing is more predominant in discrete industries and utilities than in process industries. In the discrete industries, for example, outsourcing is increasingly being used for product engineering.
A wide range of outsourcing firms is available for manufacturers to use. Many suppliers of both software and hardware also offer services to support installed hardware and software assets for the entire lifecycle. Staffing firms and service providers offer a variety of capabilities and services, with varying industry focuses. Regional system integrator firms offer local support and usually start at the control and automation/manufacturing execution system domain level. Global service firms such as IBM and Accenture offer comprehensive global reach and a broad slate of supply chain and enterprise service offerings. Information technology (IT) service providers are proliferating throughout business processes and moving into manufacturing.
One successful type of outsourcing firm that has achieved a growing client base is the global service providers (GSPs) using an onsite-offshore model. These outsourcing firms offer extensive support capabilities, combining resources from both onsite and offshore locations. Local services are conducted in the traditional manner, but are supported by a flexible offshore structure that incorporates an advantageous labor cost basis. The market leaders are currently India-based firms, but offshore centers are developing in other regions as well. Experiencing high levels of acceptance by other industries, GSPs using the onsite-offshore model are now targeting manufacturing. The initial marketing approach was to offer cost-effective IT services, but many now offer an expanded range of services to manufacturers. Market penetration is primarily in the discrete industries, but GSPs are targeting process manufacturers as well.
Service providers have varying allocations of skill sets that span vertical industries, geographies, and application domains, size and complexity of engagements, and duration of engagements—implementation or development only vs. long-term support. The preferred approach is to focus on firms that could be suitable as long-term partners as well as for use in the initial engagement.
The outsourcing selection process begins with establishment of a selection methodology that includes selection criteria development and a formal evaluation process and certification programs. Examples of selection criteria include specific product knowledge, vertical industry expertise, post-implementation capabilities, service locations and response times.
Revision of internal management practices may be necessary to manage the different demands that outsourcing imposes on the client firm. Outsourced work must adhere to and be synchronized with internal corporate guidelines and workflows. Development of best practices will facilitate continuous improvement and management of outsourcing.
Russ Novak, email@example.com, is Research Director, Automation, at ARC Advisory Group Inc., in