IT leads increase in outsourcing
Information technology is leading the increase in the U.S. outsourcing market, which has more than tripled since 1996, according to a report by The Conference Board. The market for outsourcing was $100 billion in 1996 and $345 billion in 2000. The size of the European market is estimated to grow from $40.2 billion in 1998 to $51 billion in 2003, according to the Outsourcing Institute and Dun & Bradstreet.
A recent Jupiter Media Metrix study says more e-retailers will turn to outsource shipping in the coming years. Jupiter expects spending on infrastructure for private trading networks to jump from $465 million this year to $37.4 billion by 2005. The study shows that 44% of online retailers lose money shipping and handling.
The Outsourcing Institute report is based on a survey in which 93% of IT and business executives from 150 American and European companies reported outsourcing some IT and business process functions. "Outsourcing is no longer a remedy, it is a strategy," says Howard M. Lackow, author of the report. "The most important criteria for choosing a service provider are a proven track record and guaranteed service levels."
The functions most likely to be outsourced are Internet services, voice network management, and user support. Outsourcing is viewed as wholly satisfactory by 55% of survey participants and as partially successful by 39%.
The most frequently cited benefit derived from outsourcing is reduced costs (39% of the survey respondents). This is followed closely by increased access to expertise (38%) and improved internal service (37%). The most frequently mentioned problem with outsourcing contracts is the lack of a performance/service guarantee and level. Other problems include different interests between outsourcer and company, high staff turnover, unclear contracts, increased costs, lack of flexibility as company business needs change, lack of contract governance by company, and long length of contract. A proven track record (50% of respondents) is the primary characteristic sought in an outsourcing service provider. Guaranteed service levels was mentioned by 48% of the survey participants.
This study`s findings were consistent with the concerns experts and retailers told Internet Retailer regarding the choice between in-house and outsource fulfillment.
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