IT outsourcing: manufacturers concentrate on service
To compete with offshore rivals
Western manufacturers, long used to outsourcing production itself, have begun focusing on service delivery to compete with cheaper offshore rivals. However, services are complex to co-ordinate and maintain, and manufacturers, who often lack the skills to do so, are outsourcing this to IT specialists to a growing extent.
The manufacturing sector, more than any other, has embraced the concept of outsourcing non-core functions in order to focus on key areas such as R&D, sales and marketing. Soft drinks manufacturer Coca Cola, for example, sources the vast majority of its manufacturing work from third-party companies, and today is effectively a sales and marketing operation.
Manufacturers are also increasingly keen to outsource the management of their IT infrastructure to third-party companies. Of the 100 largest IT outsourcing deals signed so far, 18%, the most for any one sector, were signed by manufacturing companies. Consumer packaged goods giant Procter & Gamble closed the largest: a $3 billion deal with Hewlett-Packard.
Western manufacturers, increasingly struggling to compete on price and quality against offshore rivals in locations like India and China, are choosing to differentiate themselves by providing excellent service quality instead.
Investment in wireless technology is taking off in the manufacturing sector as manufacturers become aware of how it can greatly aid field-service engineers. Companies are also planning to invest in systems to make the most of the data in their ERP systems.
Growing investment in add-on technology to ERP systems could have a knock-on effect on related applications management spend. Chris Grimshaw, SAP management consultant at LogicaCMG, said: "We have refocused to take advantage of outsourcing around SAP, which has stemmed from technologies that clients are deploying such as portals, procurement, data warehousing and business intelligence."
Each of these areas is spreading out the technology skills required within organizations and many manufacturers fear that they lack the expertise to manage this complex infrastructure. Increasingly, they are turning to IT specialists to fill the gap.