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How Likely Are You to Be Outsourced? Competitive Advantage and Outsourcing

ISM's 89th Annual International Supply Management Conference

Philadelphia, PA
April 2004


Roberta J. Duffy

Robert Monczka, Ph.D.
CAPS Research

John D. Blascovich
A.T. Kearney

Many supply management organizations have long recognized, and long used, outsourcing as a competitive advantage - transferring the production or management of a particular activity to a third party when it was deemed the third party could add more value, improve costs or efficiencies or optimize resources the original firm didn't have.

At ISM's 89th Annual International Supply Management Conference, Monczka and Blascovich shared the results of a forthcoming CAPS Research survey that shows current outsourcing trends and sheds some light on the question: How likely are you to be outsourced?

In this study, 14 activities were examined, and in general, overall penetration of outsourcing is relatively low. While 50 percent of the companies surveyed outsourced eight to 14 of the activities, most (85 percent) of the respondents were only outsourcing an average of 15 percent of the total activity. In other words, many areas are exposed to outsourcing, but there is still room to grow in terms of magnitude.

The researchers isolated various portions of the business and determined what the greatest tendency toward outsourcing was in each. On the supply side of the business, distribution/fulfillment saw the greatest outsourcing activity. In the category of corporate support, IT functions ranked highest. For the research and technology areas, engineering/detailed design was most likely to be outsourced, and on the demand side, call centers saw the greatest outsourcing activity.

Outsourcing of all activities is projected to grow, by 30 percent over today's rates overall, including the outsourcing of procurement/supply management, which will grow by 19 percent. Researchers say that the procurement function is at a turning point, similar to what was experienced by IT professionals in 1985. At that point, technology and technology skills sets were moving into a position of strategic importance in the firm. At this point for procurement (as it was for IT then), there are essentially three potential paths for the function to take within any given organization:

  1. There's an opportunity to get more involved, add value and be a competitive-advantage partner within the enterprise.
  2. The function can become an internal utility.
  3. The function can be analyzed in order to identify components that are prime for outsourcing.

The skills, competencies and value-add potential of the function will be a determinant for which path is taken.

Interestingly, this study showed that there is a unique phenomenon with supply management being involved with outsourcing decisions. In those instances that surveyed companies deemed their "best cases" of outsourcing, purchasing/supply management was always involved to a greater extent than in the instances that were deemed "worst cases."

The formal report of this study is expected in June 2004 and will be available on the CAPS Research Web site.

By Roberta J. Duffy, editor of Inside Supply Management®

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