Parallel growth rates between the Internet and companies that outsource manufacturing and other “in-house” activities is no coincidence, according to at least one expert. Dr. Paul Tasner, speaking in Los Angeles at a summit conference of mid-market CEOs, said the relationship between the Internet and overall growth of outsourcing are directly linked.
“Web-based eBusiness tools allow companies to keep a close eye on increasing varieties of functions that are normally outsourced,” Tasner said. “Traditional functions - such as advertising and legal services—have been somewhat easy to monitor. Now manufacturing processes are ‘visible’ via the web, and companies can maintain real-time control of supply chain functions, even when these activities are totally outsourced.”
Tasner is vice president of OM2, a California-based outsourcing management company.
The ability of management to “view” the entire supply chain cycle is one reason for the phenomenal growth in outsourcing the last few years, Tasner said. Four years ago, U.S. companies spent $100 billion on outsourcing. By next year, that figure will more than triple to $350 billion.
“Companies are learning to ‘manage’ the supply chain,” Tasner told a group of 125 executives at a conference on emerging Internet Strategies and Tools for Mid-Market CEOs. “Sophisticated executives understand that ‘managing’ the supply chain is much different than hiring operations experts and staff to ‘sustain’ the supply chain.”
Tasner pointed out that the number of manufacturing jobs has declined by nearly 20 percent in recent years. He reported that these declines will continue as companies turn to manufacturing specialists and other logistics experts to take on operations functions that are not core competencies.
Meanwhile, Internet power is hastening the growth, Tasner reported. “Instant availability of data and information allows clients greater measures of control, and a greater sense of security,” he explained. “It’s scary for some managers not to `touch’ their products. But that concept is softening since they can easily stay `in touch’ with the manufacturing cycle through eBusiness tools and software applications via the web.”
Tasner advised the executives to remain vigilant about prospective partners before entering into long-term outsourcing agreements. “Each partnership is unique and customized,” he explained. “Look for companies with a seasoned and disciplined management team.”
Tasner discussed a business model that he said is key to successful outsourcing. “Companies need to develop an outsourcing strategy that determines exactly what to outsource and when to start,” he explained. “Companies must also thoroughly evaluate expertise as if they were hiring in-house management.”
Finally, Tasner said cost analysis planning should reveal bottom-line savings opportunities well in advance of actual outsource manufacturing. But he cautioned that the process must come “with built-in performance measurement mechanisms.”