Conversations on the subject of outsourcing are common in today’s business environment and are often referred to during discussions focused on the subject of cost optimization. As consultants, we are often called upon to assist clients in exploring the possibilities of outsourcing various components of their business. Information technology and ancillary business processes are the most popular components for outsourcing. Clients are willing to explore and are eager to benefit from the cost saving potential made possible through a well-planned and well-executed outsourcing arrangement. This is especially true when these partnerships focus on outsourcing various support processes required to run a business. Accounts payable, payroll and administration of employee benefits are examples of ancillary processes often considered for outsourcing. Occasionally, discussions focus on entire cost centers, such as the Accounting, Human Resource, Purchasing and IT departments as potential candidates for outsourcing.
In the past, conventional wisdom dictated that exploring outsourcing options might encroach on or become close to a company’s area of core competence, usually through a direct dependency. Yet for a manufacturing company or a company dominated by a complex refinement process, this could be the best area to consider a strategic partnership and start outsourcing discussions that focus on strengthening a company’s core competence. The remaining sections of this paper deal with some of the areas where the greatest potential benefit to manufacturers could accrue by establishing outsourcer relationships.
- ERP (Enterprise Resource Planning)
- Applied Technology
- Manufacturing Operations
- Other Considerations
ERP (Enterprise Resource Planning) is a management tool for discrete and process manufacturing firms of all sizes. It is a valuable tool that is not limited to just large corporations. Companies of all sizes are installing ERP software to improve current business processes, to gain greater control over business/operating units or to replace aging enterprise planning and information systems that have limited capabilities. Implementing an ERP also serves as a means for a company to evaluate the benefits of outsourcing any number of its business processes. When taken in conjunction with the IT Outsourcing service, a company has the opportunity to consider the full range of benefits associated with multi-function outsourcing.
The implementation of an ERP system involves a complex series of tasks ranging from the selection of the best application to hardware and infrastructure changes to the actual installation, data migration and finally, fine-tuning. Post implementation activity can also be overwhelming for a small or mid-sized company as the maintenance, management and refinement of the software and hardware is an ongoing task. This can create a difficult situation for a company with limited resources.
ERP outsourcing provides a combination of services designed for customers who are either unable or unwilling to tackle the responsibility for installing and managing the complex application, but who want the management information and control that it provides. If you believe that your company cannot support the rigors of installing or maintaining the management requirements of an ERP system, then ERP outsourcing is an option for your company. ERP outsourcing is a business partnership that allows the customer to have the best system possible without the facility or staff necessary to maintain and manage it. While the ERP services segment is well suited for smaller businesses interested in getting into an ERP environment, many large businesses have also chosen to outsource installation, maintenance and management of their system.
Applied technology is simply that technology which is employed to either make a product or control a process. It is usually very specialized and requires specific technical skills to maintain and keep operational. Technology of this kind is often used in automated or batch type manufacturing environments. It has its own infrastructure and is operated with microprocessors that manage various control loops and are usually linked to an information system for reporting.
If you have items such as flow meters, pressure transducers, time and temperature regulators, automated switches, recording devices, volume indicators, automatic valves and related technology controlling your manufacturing process, then outsourcing and creating a strategic partnership in this area may be a consideration for your company. The benefits could include greater equipment and process up time through preventative maintenance, ongoing technical support and access to the latest technology.
Meaningful discussions on the subject of outsourcing maintenance require working through a structured framework to arrive at the correct strategy for your firm. Is maintenance a strategic or non-strategic process for your business? Does maintenance provide a competitive edge to your company? These are just a few of the high-level questions that require answers before a determination can be made regarding how much maintenance should be outsourced. The strategy will be different for each company and the elements of maintenance, which could be considered in an outsourcing RFI or RFP, will also differ greatly.
At TBI, we can assist in determining what the best strategy is for your company and then assist your company in executing that strategy.
Virtual company, e-business or established manufacturing businesses—regardless of the structure, nature or location of your business, there may come a time when outsourcing all or part of your manufacturing operation will become an important component of your long-term business strategy.
There are several reasons to outsource manufacturing operations. Minimizing investment capital, producing products local to a theatre of operation or simply utilizing existing capabilities are only a few of the reasons. If the time comes for your company to discuss outsourcing certain operations, it will be important to select a consulting firm that can lead you through a framework and process focused on determining the best direction and the best strategic partner.
We most often discuss outsourcing as an opportunity to create a strategic alliance by bringing the appropriate partner into our process and allowing that partner to exercise some degree of management and control over a process or function that was formally managed by your company. We should also look for outsourcing opportunities that we could provide in the markets we serve and become service providers to our customers.
What does it take? Basically, it requires knowing your customers, knowing how their products are used and knowing your customer’s customer. Once you have that information and understand it, apply some innovative thought as to how you can create a solid partnership by leveraging your core competencies and a measure of entrepreneurial spirit.