Page 1
OUTSOURCING STRATEGIES AND IMPLICATIONSROBERTA J. DUFFYCAPS: CENTER FOR STRATEGIC SUPPLY RESEARCH
For many years, firms have used outsourcing as a method to reduce costs, contract
out non-core activities, and benefit from a partner’s expertise. In more recent years,
media have highlighted the abundance of this model and its effects. When determining
if outsourcing is appropriate, supply management professionals must exercise due
diligence in a formal manner, just as they do when choosing best practices. While
executives must consider many factors, core questions revolve around retaining control
of core competencies, protecting proprietary information, and assessing long-term
benefits. These and other issues were recently discussed at a CAPS Critical Issues
Partnership Event. Through discussion and case studies, the group shared experiences
and lessons learned.
WHY THE CONTINUAL EXAMINATION — AND SCRUTINY — OFO U T S O U R C I N G ? The reasons to take a formal, disciplined look at outsourcing are
varied. Like so many other sourcing and supply strategies, its fit and applicability will
differ for each firm or supply chain. However, here are common reasons for
investigating the topic.
The Potential Benefits of Outsourcing
Keep what’s core; outsource what is not. Is the firm currently managing activities
that are not part of its core competency? Is this another firm’s core competency and
can that firm manage the activity with more efficiency and expertise?
Realize cost reduction. If the activity is not a core competency, the goal is to find a
more cost-effective way to handle the task. Outsource providers might be better suited
to handle the burden of capital investments, updating technology, and leveraging
resources.
Optimize the time factor. Creating a true “24-hour” day is one benefit of outsourcing,
particularly to the Middle or Far East. Some engineering and design projects assigned
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
O C T O B E R 2 0 0 5 Hot Topics
in Today’s
Supply Chain
ManagementWhy the ContinualExamination — andS c rutiny — of1 O u t s o u rc i n g
W h e re DoesO u t s o u rcing Fit5 Into Strategy?
Case StudyHallmark: Weighing the6 D e c i s i o nC a re f u l l y
Case StudyRoyal PhilipsE l e c t ronics: Applying a9 Disciplined Pro c e s s
Case StudyMattel, Inc.:Extending Va l u e s1 2 to Outsourc e r s
Case StudyFluor: ExperiencingAll Aspects of1 4 O u t s o u rc i n g
MISSION STATEMENTCAPS contributes competit i v e
advantage to org a n i z a t i o n s
by delivering leading-edge re s e a rc h
globally to support continuous
change and bre a k t h rough perf o rm-
ance improvement in strategic
s o u rcing and supply.
Page 2
at the end of the U.S. workday arrive in India at the beginning of its day and are
completed and returned the next U.S. morning.
Accommodate a materials-dependent environment. Firms facing rising commodity
prices must drive down operating costs, as they may be the only variables in play.
Finding an outsource partner that can operate more efficiently might be the answer.
Act as a result of mergers, acquisitions, or downsizing. A shift in organizational
structure may yield redundancies, allowing a company to consolidate some activities or
leverage its position in others.
Manage licensed goods. Some firms (e.g., toys, entertainment) face many of the
same challenges as do companies that sell licensing agreements for a brand or name.
The decision may not be whether to outsource, but how to select an outsourcer who
can properly manage the product.
What to Outsource
Firms can outsource anything—from manufacturing, to indirect spend areas, to
processes. Even those with a history of outsourcing one element may need a fresh
approach when examining the potential for another element. This can be especially
taxing if the area is quite diverse. For example, outsourcing the manufacturing at one
facility may seem relatively straightforward compared to outsourcing travel purchases,
which occur among all users and across many locations.
Always Addressing Continuous Improvement
Some firms have outsourced various functions but want to take a deeper dive and
measure the value of the model. This can involve assessing the performance of or the
value received from the provider versus an inhouse model.
This anecdotal evidence is complemented by current research from CAPS and A.T.
Kearney. In the 2004 study Outsourcing Strategically for Sustainable Competitive
Advantage, researchers discovered that the reasons to outsource fell into three main
categories: cost, competency focus, and revenue considerations. By far, the primary
drivers fell into the cost and competency areas, with “reduce operating costs,”
“reduce capital investment,” and “focus on core business” ranking the highest, cited
by more than 80 percent of respondents. Other top drivers were: “gain access to
technology not in company,” “increase flexibility and responsiveness,” and “turn fixed
costs into variable costs.”
2■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 3
Just as there are many anticipated benefits from outsourcing, there are concerns to
consider. The executives at the CAPS Critical Issues event voiced the following
potential concerns.
Potential Concerns of Outsourcing
Balancing the trade-offs. The most prominent concern is how to balance
disadvantages that come with cost savings or efficiencies. These include operational
c o n c e rns, as when a company gives up direct control of goods or services; and
philosophical concerns, as when stakeholders react to outsourcing. The question
always comes back to whether the overall decision and outcomes are best for the
f i rm .
Cultural change. Outsourcing is an extremely sensitive issue, which can cause an
emotional reaction in managers, employees, and communities. Sometimes an element
is outsourced because resources just aren’t available within a firm, but often
outsourcing displaces workers or closes facilities.
Going overseas. Some firms have been relatively comfortable outsourcing activities to
domestic or local suppliers, but find it more difficult to embrace outsourcing overseas,
particularly in the face of negative reaction.
Proprietary issues. Most companies generally will not hand over proprietary
information. They walk a fine line, however, if the process works indirectly with
proprietary information, or if outsourcing may hinder the development of new
information.
Execution. Beyond the actual decision to outsource, there are general concerns that
the execution of that strategy will yield the benefits anticipated.
Balancing values. In addition to reconciling a company’s own beliefs and values about
outsourcing, there is a need to determine if the outsource partner shares a firm’s
values and will exhibit the same business practices, social responsibility, or company
culture. This is particularly important if the outsource partner will work directly with
customers.
Lasting benefits. Many make the decision to outsource to reap the benefits of low-
cost operations in another region of the world. However, as economics and
demographics change, the cost of labor might rise. Is the investment and move to
another region worth it given the longer-term outlook?
Again, these reasons are exemplified formally in the CAPS/A.T. Kearney study. Nearly
75 percent of the respondents shared the concerns listed first; a third of them shared
3■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Some firms have
been relatively
comfortable
outsourcing activities
to domestic or local
suppliers, but find it
more difficult to
embrace outsourcing
overseas, particularly
in the face of negative
reaction.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 4
the concerns listed later. Reasons to not outsource an activity are as follows: “loss of
control,” “activities not outsourced are core,” “protection of intellectual property,”
“company policy/philosophy,” “inadequate business case,” “dependency on supplier,”
and “labor/community reaction.”
The topic of “offshoring” was touched upon directly in the anecdotal research and
indirectly in the scholarly research. Offshoring occurs when a company outsources to a
supplier overseas or in a separate country. (Moving to a supplier in a contiguous
country is considered nearshore outsourcing.)
After hearing all the buzz during the 2004 presidential election, a layperson might
assume that outsourcing, or more specifically “offshoring,” is a relatively new
phenomenon, a business model that suddenly caused shifts in the U.S. economy. Of
course, this is not the case. In that same year, the Institute for Supply Management™
issued this position statement on the topic:
Outsourcing overseas is not a new phenomenon. Business entities have been
offshoring for decades with the exodus of jobs making shoes, electronics and toys
to developing countries. In addition to “offshoring,” for many years businesses
have been shifting work from one location to another in the United States to lower
costs of operation.
For some industries and businesses, offshoring is inevitable and will benefit both
the business entity and consumers by increasing efficiency, increasing return on
investment (ROI), and lowering costs. To remain competitive and sometimes to
survive, some businesses must outsource overseas (offshoring) or face closing
their doors. For other business entities or situations, offshoring may not be the
best decision to meet the overall strategic goals.
Regardless of how well-rooted the outsourcing or offshoring decision, firms must deal
with the very real emotional aspects of the decision.
It All Comes Down to One Question
The decision of whether to outsource a particular activity will vary for each firm and
each situation. The above factors are all considerations. However, generally speaking,
the decision boils down to one question: is it right for the company? Will the value that
is achieved through an outsourcing model ultimately benefit the firm or help it to
achieve its goals? Yes, it may be a difficult and emotional decision, particularly if a firm
must layoff employees or close a facility, but is it necessary in order to curb costs so
the firm can operate in the black? Are near-term changes required for long-term
viability? In some instances, this requires “thinking in terms of the company versus
4■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Regardless of how
well rooted the
outsourcing or
offshoring decision,
firms must deal with
the very real
emotional aspects of
the decision.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 5
just an individual.” CEOs and other key personnel may be forced to explain why they
made certain decisions. They can convince their skeptics by showing how a decision to
outsource will add value to the firm.
It’s important to note that the above question may yield a decision to not outsource,
even if a company had been heading in that direction. When determining “what is best
for the company” consider: What is it that gives the company a competitive
advantage? If that competitive advantage is price, and outsourcing will translate to
lower costs, perhaps it is the best route. However, if a firm’s competitive advantage is
responsiveness to market demands and an outsourcing model will lengthen lead-times
(albeit at a lower cost), a firm might give up its competitive advantage. The analysis
must work both ways and executives must welcome the opportunity to subjectively
weigh outsourcing implications.
WHERE DOES OUTSOURCING FIT INTO STRATEGY? Most supply
management executives agree that outsourcing is a strategy that complements a larger
business model. Unless an organization is specifically designed as a “virtual” firm, in
which all processes were outsourced from the beginning, it is probably just one
component of a firm’s business strategy.
Many participants said an important first step is to determine the size of the spend.
How can a firm know if an outsourcer will add value to an internal process if the
internal process isn’t properly defined? Additionally, monitoring the performance of
the outsourcer is possible only if a firm knows the requirements. Furthermore, if
improvements or cost savings are expected from the outsourcer, the customer must
know what is reasonable in the market. Outsourcing might find a spot in a firm’s
overall strategy after a category has been deemed appropriate for “leverage” or
“business simplification” — at any rate, after strategic cost strategies have been
flushed out.
Here is an example of a strategic process and outsourcing’s role:
1. Develop commodity/article group strategies.
2. Establish and leverage a world-class supply base.
3. Develop and manage supplier relationships.
4. Integrate suppliers into new product/process development process.
5. Integrate suppliers into the order realization process.
6. Cultivate supplier development and quality management.
7. Manage costs strategically across the supply chain.
5■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
If improvements or
cost savings are
expected from the
outsourcer, the
customer must know
what is reasonable in
the market.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 6
The decision to insource or outsource comes at the beginning or end of this process,
depending on the vantage point. If an activity is inhouse, executives would go through
the seven steps. If they determine the in-house activity does not add value to the
spend, outsourcing may be appropriate. Or, once a firm understands the scope of the
spend, it can prudently decide on an outsource partner.
To ensure that these strategic processes are accomplished, one major corporation has
identified strategic enablers for purchasing/supply chain world-class excellence. They
are illustrated in the chart below.
CASE STUDYHALLMARK: WEIGHING THE DECISION CAREFULLY
Hallmark is a 95-year-old privately owned enterprise in the personal expression
industry, most commonly known for its greeting cards, though the family of companies
includes Hallmark Entertainment, Hallmark Flowers, Binney & Smith, and The Picture
People, among others. Hallmark has 18,000 employees worldwide, with operations in
more than 100 countries, dealing in 30 languages. Revenues in 2004 were $4.4 billion,
and its share of the U.S. greeting card market is greater than 50 percent.
6■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Source: Philips
Purchasing/Supply Chain World-Class Excellence
DeployGlobalizationEstablish Globally
Integrated and AlignedPurchasing and Supply
Chain Strategies and Plans
DevelopOrganization and
Teaming Strategies
Develop Purchasingand Supply Chain
Measures
Develop andImplement Enabling
IS/It Systems
Establish HumanResource Development
and Training
Page 7
In order to leverage spend, the procurement function at Hallmark is centralized, and
since 2001 it has operated under a shared services model. There is a procurement
council to accommodate all the different businesses. The firm has learned that
procurement’s early involvement yields the best results. And while there was some
initial expected resistance to the shared services model, results have exceeded
expectations.
The next step was to continue determining how procurement could make even more
of a difference in terms of products and services and bring sustained business value.
A resource alignment task force was put together. While outsourcing would seem like
a natural model to consider for most firms, Hallmark’s longstanding practice has been
to handle personnel changes in manufacturing operations through attrition or
redeployment rather than layoffs, when possible.
Through some external benchmarking, Hallmark used three questions to help it analyze
the core competency question and the potential for outsourcing/offshoring:
• If you were starting your company today, is your area a function that you would
do yourself?
• Are you so good at the function that someone else would pay you to do it?
• Is the next president of your company coming from that department?
As one would expect, when discussing what is “core” with various parts of the
organization, each function believes what it does is critical and core. When presented
with the challenge of optimizing resources and given the choices of 1) business
simplification through cross-functional work; 2) working for process improvements by
eliminating waste, etc.; or 3) outsourcing, most gravitate toward the process
improvements, as it seems like the “easiest” to tackle.
However, there was some precedent for the third option at Hallmark. As early as the
1940s, a decision was made to rely on an outsource partner for most domestic
lithography. Beginning in the 1960s, there was some offshoring, including graphics for
children’s books and the manufacturing of some ornaments and gift items. Over the
years, the functions outsourced have spanned from temporary labor, legal services, and
vending, to more expansive areas such as travel services, call centers, distribution, and
lab services.
At various times in its history, Hallmark has managed operations in Japan, Korea,
Taiwan, Indonesia, Malaysia, Singapore, Columbia, and the Philippines. Infrastructure,
political stability, the richness of the supply base, and a region’s banking system can all
affect Hallmark’s decision of whether to stay in a region.
7■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
As one would expect,
when discussing what
is “core” with various
parts of the
organization, each
function believes
what it does is critical
and core.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 8
To illustrate how the outsourcing decision is considered, one can look at some of
Hallmark’s manufacturing processes and the firm’s need to drive down costs. Hallmark
has several domestic manufacturing facilities, many fairly close to the Missouri
headquarters.
Interestingly, due to its long history of continuous improvement and expertise in the
field (more than 60 percent of workers have more than 25 years of service), Hallmark
found that in some cases, it was the low-cost option for a given process. There were
some opportunities, however.
Handwork (stitching, three-dimensional elements, etc.) on some greeting cards can be
extremely labor-intensive. While consumer trends for cards with handwork were
growing, the price points could not. A facility in Mexico proved able to do the
handwork with lower total landed costs. However, there was some concern that cycle
time would be an issue, so the decision was made to keep some of the handwork
(approximately 40 percent) local.
This multi-pronged strategy works because of variable conditions available with the
Mexican supplier, including a stable community and the ability to provide employees
with a clean, safe environment.
In order to make the transition, Hallmark kept its corporate beliefs and values foremost
as a guide. This meant open communication with employees and a very gradual
transition. Domestic workers who previously worked on handwork were either
retrained, placed in other positions, or opted for retirement, thus avoiding layoffs.
One reason that Hallmark feels it has been successful with outsourcing is the fact that
procurement hasn’t been the outright champion of the decision. It has been the
business leaders who ultimately have to be on board, in agreement, and passionate
with the idea. In the case of the Mexico facility, manufacturing played a key role in the
decision. Procurement certainly advises, consults, and helps to ensure a methodical
decision process, but it can’t be responsible for the “heavy lifting” in terms of
advocating the idea. Through a great deal of trial and error, the procurement
department has clarified its role.
Because the company is privately held, the approach taken to outsourcing is highly
dependent on the owners and their priorities. Whereas a public corporation’s board of
directors might be more driven by the financial statements, in Hallmark’s case, the
owning family’s first priority is the impact on employees. This means not only a
disciplined assessment about the implications, it also means that any changes aren’t
8■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
One reason that
Hallmark feels it has
been successful with
outsourcing is the fact
that procurement
hasn’t been the
outright champion of
the decision.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 9
done suddenly, but rolled out smoothly. The result might be a “slower” process than in
other firms, but it ensures that it’s being done “right.”
CASE STUDYR O YAL PHILIPS ELECTRONICS: APPLYING A DISCIPLINED PROCESS
Royal Philips Electronics is one of the world’s largest global electronics companies,
with a multinational workforce of 160,900 employees in more than 60 countries.
Headquartered in Amsterdam, The Netherlands, the firm has products and services
related to healthcare (including medical systems), technology (including
semiconductors), and lifestyle (including lighting, domestics appliances, and consumer
electronics).
The purchasing organization has a global spend of 23 billion, supporting 30.3 billion
in sales. There are global and regional commodity teams that address particular
materials. For example, in the area for lamps, there are teams for soft glass, spare
parts, electronic components, etc. The entire global sourcing process (deployed for
nearly 10 years) is very process-driven. There are survey tools, self-audits, roadmaps
for improvement, and third-party audits.
As might be expected, there is also a formalized process for insourcing/outsourcing
decisions and implementation. The process consists of five basic stages:
I. Business planning
II. Reorganize and prepare
III. Formal approval
IV. Execute and implement
V. Post-evaluation
The chart on page 10 details some of the elements in each phase.
To illustrate how these steps are used, Philips details the outsourcing process as it
relates to one manufacturing component: a particular set of wires that are welded
together and used in lamp production.
The wires are used in three different platforms of manufacturing and as such, require
three different machines. The quality of the wires can directly affect the quality of the
lamp; there are also workability quality issues, such as ensuring that the wires are the
correct dimensions, that they’re not damaged, etc. This commodity has a low dollar
value, but can create high consequential costs if the wires are delivered late. The
expected savings are relatively low, and innovation around design is required whenever
9■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 10
new lamps are concepted. There are four main plants that use this product; these will
be most affected by the outsourcing decision.
I. Business Analysis
At this stage, there will be market research, a SWOT analysis, benchmarking,
determination of the business case, and the creation of plans to reorganize. In Philips
case, because it was currently manufacturing the welded wire product, it had great in-
depth knowledge of the materials prices and a supplier’s potential costs.
This stage also includes a discussion about sharing the proprietary information. In its
current processes, Philips was manufacturing the wire to such a high quality that its
processes were considered core and proprietary. However, it was determined that
ultimately, the wire would be just as beneficial to the final consumer if it weren’t quite
as high of quality. Therefore, was there a way to outsource the wire, share some
processes (though not those that resulted in the highest quality), and be able to realize
10■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Insourcing/Outsourcing Process Overview
Continual Monitoring and Performance Measurement
I II III IV VBusiness g Reorganize g Formal g Execute & g PostPlanning & Prepare Approval Implement Evaluation
• Businessanalysis
• Business case• Define strategy• Define
reorganizationplan
• Developdetailed projectplan
• Gather relevantinformation
• Definealternatives
• Calculatealternatives
• Prepare detailedbudget
• Developproposedimplementationplan
• Projectmotivation
• Utilization of“@investor”lotus notesdatabase
• Local andhigher level ofmanagementdecisions andauthorizations
• Compliancewith investmentprocedures
• Utilization of“@investor”lotus notesdatabase
• Defineimplementationplan
PROJECT MANAGEMENT• Traditional
projectmanagementsteps
OUTSOURCING• Identify second
source• Qualify second
source• Collate and
monitor savingsversus plan
• Projectevaluation(projectmanagement)
• Project post-calculation(financialmonitoring)
• Post-reorganizationreview
Source: Philips
Page 11
the benefits of a lower-cost option? In this way, the “core” competency of the higher-
quality process wouldn’t be compromised yet the requirements for these particular
lamps would still be met.
When doing the SWOT analysis at this stage, Philips points out that it’s important to
think in terms of the entire situation, not just the single component or supplier. So, in
general, consider whether a majority of suppliers in this market are expanding into
low-cost regions, as opposed to assessing whether the chosen supplier is moving that
direction.
Defining the business case for outsourcing requires specific statements to be clear. An
example of a problem statement would be: We are not cost-competitive in this market.
The scope statement will detail which products, which regions, etc. are going to be
shifted. The project plan contains a detailed timeline.
II. Reorganize and prepare
At this point, Philips uses a team and says it’s key to motivate the team, even using a
creative name other than “reorganization project.” The parties involved know the
magnitude of what they’re proposing to do, but they must be excited in order to make
it succeed. Supplier intelligence reports and financial calculations are completed at this
stage. Calculations include purchasing savings, implementation costs, organizational
restructuring impact, cash flow analysis, and asset sales. It also includes a target for
payback.
Some team members will be those ultimately affected by the outsourcing shift. As
such, there is likely to be anxiety. The best advice is to just be honest upfront in order
to quelch rumors. One strategy used at Philips is to move people throughout the
company on a regular basis, to various facilities and projects. In this type of
environment, a later move due to outsourcing does not seem as drastic.
III. Formal approval
This is a strict approval process, with all the necessary documentation and compliant
with board directives. In addition to those standard people who must approve the
proposal, other relevant parties might be invited as well.
IV. Execute and implement
This phase is heavily dependent on project management skills, with timelines and
responsibilities defined. There may be an aspect of asset management. For example,
Philips might have equipment that it can sell to the new supplier. Not only does this
generate cash flow, but it helps to develop the supply base capabilities. At this stage,
there is also a responsibility to identify and qualify second sources.
11■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
When doing the
SWOT analysis,
Philips points out that
it’s important to think
in terms of the entire
situation, not just the
single component or
supplier. So, in
general, consider
whether a majority of
suppliers in this
market are expanding
into low-cost regions,
as opposed to
assessing whether
the chosen supplier is
moving that direction.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 12
V. Post evaluation
Post evaluation requires more financial monitoring, particularly tracking the projected
savings from phase II to actuals. A firm would definitely want to track the process at
least until the return on investment is realized, but at some point, tracking the savings
gained from outsourcing, compared to what would have been is of little value.
Continually tracking the outsource provider for improvement and savings compared to
market is reasonable.
In summary, in the Philips example, the firm realized a supply base reduction, going
from 20 suppliers down to two in one facility. It also saw a 27 percent price reduction
for the welded wires, and decreased lead times for one of the wire components from
six weeks to three weeks. Longer-term wins included the cash generated from
equipment sales, complexity reduction, and more cost-competitive lamps.
CASE STUDYM ATTEL, INC.: EXTENDING VALUES TO OUTSOURCERS
Mattel, Inc. is one of the world’s premiere toy enterprises, designing, manufacturing,
and marketing such brands as Barbie, Matchbox, Fisher Price, American Girl, and
Sesame Street. Headquartered in El Segundo, California, the company has
approximately 25,000 employees in 42 countries and had 2004 revenues of $5.1 billion.
The company has worldwide operations, which encompass global procurement, global
logistics, finance, and worldwide quality assurance. Within the quality assurance area is
a global sustainability group whose mission is to “promote and protect our brands by
balancing people, planet, and profit.” The global sustainability group oversees three
tiers that manufacture Mattel products:
• Those facilities fully owned and operated by Mattel around the world.
• Supplier locations in various regions of the world.
• Licensee facilities: 600 licensees operating 3,000 factories in 30 countries.
All three tiers require efficient management and expertise, but second and third tiers
specifically relate to outsourcing, as the facilities are not owned or operated by Mattel.
One aspect of outsourcing that Mattel exemplifies is the need for a brand to be
protected, even across the outsourcing relationship. Consumers who recognize and
trust a brand name do not make the distinction between the original company and any
portion of its supply chain. Anything having to do with a Mattel brand is going to reflect
on Mattel, even if it is work performed by an outsourcer.
To ensure that Mattel’s reputation and values are embodied in its outsource partners
and in those manufacturing locations owned by Mattel, the firm created Global
12■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
A firm would
definitely want to
track the process at
least until the return
on investment is
realized, but at some
point, tracking the
savings gained from
outsourcing,
compared to what
would have been is of
little value.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 13
Manufacturing Principles (GMP) in 1997. The idea came after a national news program
did an exposé about workers in an underdeveloped region manufacturing Barbie
clothes. It is now the cornerstone for how Mattel treats people around the world,
rolled out to all those entities that manufacture its branded products.
The GMP program checklist consists of 12 parts covering the following categories:
management systems, wages and working hours, age requirements, forced labor,
discrimination, freedom of association, living conditions (dorms and canteens),
workplace safety, health, emergency planning, environmental protection, and customs.
While each checklist is based on a standard template, there are country-specific
variations.
The questions (up to 115 of them) are critiqued by the following terms: those areas for
which Mattel has zero tolerance, areas considered highly critical, critical, major, and
minor. An example of a zero-tolerance question is: Is each employee at the facility
employed of his or her own free will? A highly critical question is: Are all deductions
from gross wages allowed under the labor law regulations? Even though the questions
will be standard for each country, what is considered “standard” or “acceptable” will
vary from country to country. For example, standard working hours per week vary
around the world. In some cases, Mattel’s own standards exceed what is considered
locally acceptable: the International Labor Organization sets 14 as the minimum
working age; Mattel’s standard is 16.
Compliance with the program is determined through an index system. Facilities are
graded on critical, major, and minor questions, with responses weighted accordingly.
Zero tolerance and highly critical findings are simply numbered and incorporated into
the overall index. The index then determines how frequently the manufacturer is
monitored; obviously those who don’t improve could be terminated.
An important aspect of the compliance program is to have the results audited by an
independent party outside of the GMP. (In some cases, the independent group is part
of Mattel; sometimes it is a third party.) This transparency not only ensures objective
results, it also helps foster the corporate culture and promote the GMP mission. The
factories around the world also embrace the whole idea. One manager in Indonesia
wanted this Mattel experience to be a bridge for workers to strive for higher standards
in future jobs as well. Finally, the audit has internal benefits as well. One major
audience is existing employees throughout the corporation who can take pride in
working for a firm that has such a strong focus on social responsibility.
13■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
An important aspect
of the compliance
program is to have
the results audited by
an independent party
outside of the GMP.
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 14
CASE STUDYFLUOR: EXPERIENCING ALL ASPECTS OF OUTSOURCING
Fluor is a publicly owned engineering, procurement, construction, and maintenance
company with more than 37,000 employees worldwide and 2004 revenues of $9.4
billion. It is active in 75 countries and serves customers in industries such as:
chemicals and petrochemicals, commercial and institutional, government services, life
sciences, manufacturing, mining and minerals, microelectronics, oil and gas, power,
telecommunications, and transportation. Much of Fluor’s work is project-based.
The procurement effort is center-led, as the company’s goal is to present “one face” to
the supply base. For example, the centralized team manages 140 different supplier
relationship agreements for repetitive purchases, even though the users may be quite
diverse in terms of geography and division.
Fluor has an interesting perspective on outsourcing. It has used outsourcing for some
aspects of its own internal operations, but also considers outsourcing when it is
fulfilling services for customers. Furthermore, Fluor itself is often hired as an outsource
partner for other firms. From this unique vantage point, the firm has developed
significant experiences and learned many lessons related to outsourcing.
Some of the services that Fluor outsources are:
• Human resource functions
• IT
• Security
• Facility services
• Food services
• Records management
• Travel
It has also work-shared engineering design functions for the past 15 years in countries
such as Poland, India, and the Philippines.
The IT function is one example where Fluor gained valuable experience in terms of
outsourcing. In the late 1980s and early 1990s, some smaller IT contracts were in
place for mainframe hosting and operations. Later, other contracts were outsourced for
other functions, such as server administration, security, and wide-area networks, etc.
However, these contracts were fragmented and not centralized. Even if Fluor had
wanted to do one contract for all IT services, it was difficult to even define the scope
of that requirement.
14■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Page 15
In 1998, Fluor repatriated the outsourced IT functions mentioned above in order to
ascertain “what was there.” This shift allowed the firm to formally analyze the
outsourcing decision. In 1999, two separate contracts were awarded (for $12 million
and $55 million) for some services, and in 2003, another, worth at least $315 million
(over seven years) was awarded for more.
15■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Critical IssuesR E P O R T
Critical Issues Report, October 2005; www.capsresearch.org
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■