Industry news

Outsourcing is good.

Well obviously I am going to say that. However, I am not the only one blowing the outsourcing trumpet. When Adidas recently revealed plans to outsource the manufacturing of NBA jerseys it was seen as a controversial move. Senator Chuck Schumer went as far as to claim that the company was sticking ‘America in the eye’ with its aim to outsource to Thailand. This claim was not well received by economy and business journalists alike.

I think the most poignant argument against Schumer’s outsourcing bashing was formed by Fox Business journalist John Stossel:

“What Schumer doesn’t get is that what really “sticks America in the eye” is his protectionism. Outsourcing is a good thing. When companies go abroad, they do it because the cost savings allow them to make better products for less. This means more profit for the company and lower prices for all American consumers and businesses. Shumer, like many of his colleagues, doesn’t understand economics”.

Here, here Stossel! I couldn’t have put it better myself. So in true ‘sticking’ it in Schumer’s eye style, I will proceed with the main sourcing news this week.

The London School of Economics made history this week when it claimed it has signed the first ever academic website management outsourcing contract. The contract was signed with iomart Hosting who will maintain the platform that supports the Universities website off site.

This week has also seen CBI, the employer’s lobby organisation, and private sector chief executives, urging the UK Government to look more seriously at public sector outsourcing. The public sector outsourcing debate is clearly intensifying as we draw closer to next year’s inevitable UK election.

Alistair Darling, the Chancellor of the Exchequer, was asked to balance his books two years earlier than he had first proposed, and to consider the option of more outsourcing for the sector. I wonder what Schumer would have to say about this. We’re pretty certain offshoring is also going to play a part. Perhaps we could offshore government expense claims Ed?

Finally, a report was released that showed more than one in five UK small and medium enterprises are considering offshoring next year. The research was carried out by ICM in November on behalf of SLASSCOM, the development body for Sri Lankan outsourcing.

I think I mentioned it last week but I am going to have to reiterate that 2010 looks like it is going to be a big year for the outsourcing and offshoring industry. Outsourcing is good.

Globalisation has meant sourcing from further afield (often the other side of the world). Yet there is growing consumer conscience, and more awareness of green issues thanks to the immediacy of the Internet. All this combines into increased supply chain risk. “Greening” the supply chain is a control mechanism which can help protect all parties in the chain from adverse brand and reputational attack, whilst contributing to the bottom line of supplier and buyer alike.

Up to 90% of a business’ carbon footprint derives from its supply chain. Therefore, applying quantitative performance targets - such as a 10% reduction of the carbon footprint of bought-in product/semi-finished goods/raw material over the next 12 months - can have a dramatic effect on the bottom line. However, if a supplier is already at or near best practice in terms of carbon footprint management, it would be unfair and unrealistic to impose a 10% improvement objective, so there needs to be a mechanism to fairly distribute the targets. Meanwhile this all has to be policed and reported on. Technology tools as well as management commitment are required here - after all, if you can’t measure it, you can’t manage it - where have we been, where are we now, where do we want to be, how do we get there?

Carbon reduction/greening the supply chain is good for the companies in the supply chain, good for the purchasing company, good for UK plc, and good for the planet!

Some points for consideration:-

 ISO 14001 is an environmental management standard imposed more and more on suppliers by such as local authorities, government departments and many large commercial organisations. In turn, suppliers are tending to pass on 14k certification as a requirement to their suppliers.

 Supply chain greening is often integrated with compliance with other risk areas in self-assessment forms, and/or assessed by internal or external audit teams e.g. health & safety, social/ethical, business continuity.

 The larger the supply chain, the more complexity. Responsibility in the public’s perception goes beyond first-tier suppliers all the way down to raw materials suppliers. Images on the 6 o’clock news of filthy chemical effluent pouring into a stream can be potentially disastrous to the brand, reputation and share value of a manufacturer – whatever protective contracts they have with their tier 1 suppliers.

 Legal compliance – increasing costs of non-conformances/corrective actions, fines/penalties, danger to brand and reputation, lack of confidence by investors, employees, suppliers.

 Performance benchmarking – internal and external.

 Reduction in energy use in the supply chain, GHG emissions improvements in the supply chain, trading carbon equivalents etc. all require data collation, analysis and reporting - data submission requirements to UK government as part of the Climate Change Agreement scheme, participation in the EU Emissions Trading Scheme, plus the UK government’s new CRC initiative.

All businesses simply have to do something about greening their supply chain – just how far will you go? How quickly? What software tools are available to help? What is the ROI argument and project payback period – a powerful business case must be presented to and accepted by the board, and then consistently driven through the supply chain.

More than one in five (22 per cent) of UK small and medium enterprises (SMEs) are considering offshoring next year.

Additionally, a fifth of SMEs have increased their interest in offshoring as a direct result of the recession, according to research from Sri Lankan outsourcing body SLASSCOM.

The research also highlighted some concerns for SMEs considering offshoring, notably

fears about a loss of control (33 per cent) and data security issues (22 percent).

Another important concern was that of possible reputation damage associated with offshoring, with 21 per cent stating this as a worry.

Madu Ratnayake, general secretary of SLASSCOM said: “Interest in offshoring in the SME sector is both a symptom of the need to cut costs and a recognition that one country doesn’t always have all the skills needed for success.”

Martyn Hart, chairman of the National Outsourcing Association, added: “Many larger businesses have already reaped the benefits of offshoring business models and now it’s the turn of the SME. We expect a significant increase in cost-based and strategic sourcing across the SME sector.”

Pharmaceutical company Eli Lilly and Company has joined forces with data service provider HP Enterprise in a bid to improve the company’s collaboration with external partners.

HP will manage Lilly’s employee workplace computing and messaging environment across its global operations, following the deal, providing services including hosted messaging, service desk and site support services. It will also offer web hosting services and provide identity management services.

“At Lilly, our goal is to discover and develop innovative new medicines that produce improved outcomes for individual patients,” said Mike Heim, senior vice president and chief information officer, Eli Lilly and Company.

“This agreement with HP enables us to access cost-effective, market-based, global infrastructure services, allowing our internal resources to focus on value-added capabilities more directly aligned to our core business.”

The U.S. Department of the Interior's National Business Centre (NBC) has struck a deal with CSC to provide SAP system support.

The SAP system will support NBC's Financial Management line of business, which provides financial management systems and accounting services in support of federal agencies.

These services include SAP implementation, integration, operations and maintenance to help federal finance officers strengthen management systems, accountability and transparency.

Jim Beall, the National Business Centre's chief financial officer said: "By providing SAP as an additional choice to agencies, we can help our customers meet their federal financial management needs more effectively and efficiently."

Foreign workers in offshore contact centres face the “brunt of consumer hostility”, research has indicated.

Nearly two-thirds (65%) of customers said they found non-British accents in a call centre difficult to understand, according to a survey of over 2,000 customers by Nuance Communications.

The research also suggested that more than one in five (21 per cent) Brits are ashamed of the way they have spoken to call centre agents in the past.

Ian Turner, Nuance general manager for Northern EMEA said many call centres are overlooked and offshored instead of being seen as an important operation.

“Customer service is a differentiator in any competitive, resource-strapped economy. In a recession it's fundamental to survival and recovery. And yet, against better business judgement, many call centres are overlooked for investment or just offshored.”

“As the principle point of customer contact, call centres should be regarded as the company’s crown jewels. Contacting a company should be a positive experience, not one that exasperates and tests your limits.”

Lloyds Banking Group is looking to make further job cuts with the closure of its Sussex House contact centre

Lloyds, which merged with HBOS last October, confirmed it was planning to close the centre next May – and transfer work to other sites across the UK, it has been widely reported.

The bank said the change would affect around 535 jobs, of which 162 will be redeployed, leaving a reduction of 373 jobs.

David Nicholson, of Lloyds Banking Group's retail division told the Guardian: "As part of our integration process, we have reviewed our contact centre sites to ensure that we are operating in the best possible way. We recognise that this is difficult news for our affected colleagues.

"We are committed to working closely with them to help them look for other opportunities within the group and elsewhere between now and May next year."

Lloyds said it would try to achieve job losses through voluntary severance and making less use of contractors and agency staff, with compulsory redundancies a "last resort".

Equitable Life Assurance Society (Equitable Life) has signed a large service contract with HCL Technologies Ltd. (HCL), a global IT services provider. The contract starts in March 2011 and will see HCL managing core processes and support activities that are required to run Equitable Life's closed book of business.

As part of the contract HCL will be providing policy administration, finance, actuarial services, IT operational support and call centre services.

Chris Wiscarson, Chief Executive of Equitable Life commented: "This is one of the most important decisions in the Society's history. I want to help restore policyholders' savings and this is an important step in that direction."

As a result of the outsourcing contract Equitable Life expects to make cost savings of approximately £8 million in the first year. Future savings and predictability of costs also means Equitable Life can reduce its provision for future costs by an amount in excess of £100 million.

The NHS is set to begin a software supplier procurement process by the end of April 2010 to ensure no trusts are left without IT suppliers.

Southern trusts will choose from suppliers including Atos Origin, Logica, Siemens, Perot Systems, Tata Consultancy Services and Agfa Healthcare. Some trusts are also expected to run collaborative procurement, it was reported in E-Health Insider.

Many NHS trusts in the south of England were left without new patient administration systems following the departure of IT partner Fujitsu from the £12.7 billion National IT Programme in 2008.

The news comes as NHS IT suppliers, BT and CSC prove they have succeeded in implemented workable patient systems.

CSC has already implemented the iSoft Lorenzo system at Bury, and BT is also understood to be putting the final pieces into place at Kingston for the Cerner Millennium system.

The NHS has said it will work through a list of criteria that will examine the usability of the system and has commented that if there is a “clear failure”, then it will “consider a new plan for delivering health informatics”.

Mahindra Satyam, the new brand identity of Satyam Computer Services., the once-embattled IT services provider, announced today that it has selected Malaysia to kick off a new international expansion.

The newly rebranded company has announced it will enlarge its ‘Global Solution Centre’ (GSC) operations in Malaysia by moving more global software development and delivery operations to its 15-acre Cyberjaya facility, based in Malaysia’s prominent Info-Comm Technology corridor. The new GSC - which has 18 configurable offshore development centre blocks, 1,100-seat development block and a data centre to host 1,100 servers - will serve as Mahindra Satyam’s largest technology development and delivery facility outside of India.

Mahindra Satyam has said it will use the new capacity to focus on full range of both mainstream business and technology functions like ‘Remote Infrastructure Management Outsourcing’, Business Process Outsourcing, software services and some software testing.