Saturday, September 15, 2007

Outsourcing savings lost to poor processes

Survey finds majority of manufacturing companies outsourcing operations losing hard dollars due to outdated processes

Companies that outsource parts of their operations without appropriate processes in place could ultimately lose the potential cost savings outsourcing promises.

Survey results released Wednesday show that 85 percent of 800 manufacturers polled outsource part or all of their manufacturing operations, but two-thirds of those reported they use manual, time-consuming processes such as phone calls, faxes and e-mails with spreadsheets. The US-based survey, conducted by manufacturing product life-cycle management (PLM) vendor Arena Solutions and consulting firm Symphony Consulting, also revealed that 52 percent of manufacturers who outsourced and depended on manual methods lost money due to communication and documentation errors.

"While outsourcing offers significant financial merits and enables companies to focus on their core strengths, it is not free of challenges," said Bijan Dastmalchi, co-founder and senior consultant at Symphony Consulting, in a press release. "Outsourcing manufacturing without the proper infrastructure and control is a recipe for failure."

Specifically, costly errors led to rework, scrapped inventory, excess materials and product recalls, according to Arena Solutions. Areas that posed challenges for companies outsourcing manufacturing include coordinating new product introductions, managing changes, and communicating information across organizational and geographical boundaries.

"Shepherding a product from design through manufacturing is difficult, but introducing outsourcing into the process pushes it to a significantly higher level of complexity. Despite the cost savings associated with outsourcing, the management task becomes even more difficult and carries greater risk," Dastmalchi said.

Fewer than one-third of survey respondents reported they use PLM systems, but those that did reported having fewer outsourcing issues compared with peers depending upon manual processes. For instance, those using PLM reported they have 32 percent fewer problems with new product introduction, 29 percent fewer problems with environmental regulatory compliance and 26 percent fewer problems with product change management.