Outsourcing has become a common business practice to decrease manufacturing costs. Almost every element within a manufacturing company has been analyzed for suitability and impact. Leading edge manufacturers have outsourced vital key services and core departments in an effort to convert fixed overhead to variable costs. Just-in-time inventory, supply chain compression and sub-contracting key processes are sourcing success stories. Manufacturers of non-durable goods have successfully off-shored the complete manufacturing process to lower wage countries in an effort to compete globally. Apparel, textiles, durable goods and sub-components are examples of off-shore industries
In today’s business environment, every company is looking for ways to reduce costs. And yet, there is a limit to the savings that can be achieved through reduced inventory and lean manufacturing. Most companies have leveraged their material spend to achieve savings, and have undergone significant headcount reduction. Many are now turning to sourcing as a weapon in the cost-cutting arsenal. But outsourcing is about more than shrinking budgets and reducing headcount. Pursued strategically, outsourcing can deliver a broad range of advantages. Progressive companies are using outsourcing to:
- Benefit from best practices
- Focus on core competencies
- Adapt to changing market conditions
- Rethink and actually transform the business
What’s appropriate for outsourcing? Anything that’s not core to an enterprise’s business or related to its strategic direction. In general, functions that affect revenue generation, such as product development and direct customer contact, are core. In the past, outsourcing targeted clearly definable functions. In IT, for example, activities like help desk, security, and backup and recovery became ideal candidates for outsourcing. But forward- thinking companies havediscovered effective waysof outsourcing entirefunctions. Such businessprocess outsourcing (BPO)can include financialaccounting, payroll andbenefits management, andeven some aspects of customercare.In fact, the BPO marketis expected to grow atnearly a 10 percent annualrate, reaching $173 billionby 2007, according toGartner, a research firm. IToutsourcing will expandmore slowly, from $536billion to $707 billion during the same period.
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