By Dan Berthiaume
Historically, manufacturers have outsourced non-core activities such as HR and finance, and more recently have extended their usage of BPO to cover areas such as procurement and supply chain. However, many manufacturers are starting to realize the benefits BPO can bring to higher-level functions such as product design and innovation and social media.
A new white paper from Capgemini, “BPO in Manufacturing: Catching the New Wave of Innovative Services,” illustrates how the manufacturing industry is increasingly discovering BPO’s potential for higher-level services. Capgemini conducted research looking at the practices of leading companies operating in segments such as aerospace and defense, automotive, high tech, and industrial products to gain insight into how they are applying BPO in areas including supply chain management (SCM), finance and accounting (FAO), product design/innovation, and social media. Following is a brief overview of manufacturing BPO activity occurring and developing in each of these four areas.
Increasing Complexity Will Drive SCM
Capgemini examined three key areas within SCM: order management, procurement/sourcing management, and logistics management. Within order management, the BPO market is expected to grow by approximately 10% during the next few years as manufacturing companies continue to outsource end-to-end processes. Key growth will come from end-to-end management offerings to address different degrees of complexity and customer configuration among manufacturing organizations.
Meanwhile, although manufacturing companies have for some time been outsourcing their procure-to-pay cycle, including activities like requisitioning, purchase order management, and invoice processing, a growing procurement trend involves outsourcing the entire source-to-pay cycle, taking into account activities such as managing catalog content, tracking and improving supplier performance, supplier e-procurement set-up, developing a sourcing plan, and conducting spend analysis. The strongest gains are anticipated in EMEA (Europe, Middle East, Africa) and Asia Pacific, and with niche activities like indirect procurement.
The global recession had slowed the outsourcing of logistics operations in the manufacturing industry, but it is steadily rising again, especially in EMEA. As supply chains become more complex, they are increasingly being outsourced to logistics service providers, which are focusing on developing capabilities around the strategic logistics portion to manage the entire logistics value chain.
Capgemini sees much of the management outsourcing activity centering around fourth-party logistics (4PL), independent coordination of end-to-end logistics services for maximum benefit. By adopting a holistic approach, 4PLs have been able to integrate the competencies of various logistics players, including third-party logistics (3PL) providers, leading-edge consulting firms, and technology providers. This has enabled them to offer manufacturers better pricing and a wider range of services.
FAO: New Offerings Fuel BPO Growth
Manufacturers have long outsourced basic financial processes such as accounts payable, travel and entertainment, billing and invoicing, order management and collections, general ledger, and fixed assets. However, some organizations are now moving to outsource higher-end processes such as cost analysis, business performance analysis and reporting, new business and pricing analysis, and audit and risk management.
In addition, although transactional FAO represents a mature market, new, non-core activities like decision support and financial planning and analysis are expected to fuel gains in the next few years, helping to contribute to a projected growth rate of at least 10%. Leading BPO vendors are expected to develop capabilities that will enable them to provide end-to-end offerings within the F&A BPO landscape.
R&D Outsourcing Provides Flexibility as Well as Cost Benefits
The BPO market for product design and innovation services is relatively small, but Capgemini projects it to grow by almost 30% in the next four years. Activities increasingly being outsourced include technical publications, drafting and modeling, testing, systems design, and prototyping.
Capgemini research indicates organizations are offshoring product design and innovation activities not just for the cost benefits, but also to achieve flexible resource capacity (especially in industries with cyclical engineering workloads and short product lifecycles), reduce time to market, access specialist tools, and accelerate development of localized products for emerging markets.
Capgemini finds EMEA and the Americas represent the biggest markets for product design and innovation BPO within the manufacturing sector, with high tech and aerospace and defense the most active segments. In the aerospace segment, BPO activities focus mainly on engineering services, while a large number of high-tech companies outsource the majority of their research and development work to BPO vendors or specialized providers.
Furthermore, some automotive manufacturers are outsourcing activities such as design, prototyping, and CAD, while many industrial product manufacturers have set up captive or shared-service centers to handle R&D activities.
Social Media: A Strong Beginning
Adoption of social media among manufacturers is increasing as companies begin to realize benefits in areas such as product co-creation, marketing, and customer communication and interaction. Leveraging social media to generate measurable benefits with activities ranging from service management to marketing of new products is used by customer service departments inside manufacturing organizations.
Capgemini expects adoption of social media by manufacturers to continue gaining momentum as companies try to connect with customers at various stages of the product lifecycle. As manufacturers expand their activities in social media and social marketing, some are beginning to look to third parties to more effectively manage this early-stage service.
While BPO services in social media are in the nascent stage, growth is anticipated as manufacturers look to outsource services such as e-mail marketing, social campaign management, social media marketing, and web and social media analytics.