Thirteen days before his State of the Union address, President Barack Obama held a meeting at the White House to discuss how to bring outsourced jobs back home. Among the 25 participants was Harry Moser, ex-president of machine-tool firm GF AgieCharmilles, and founder of the Reshoring Initiative, a group of companies and trade associations trying to bring manufacturing jobs back to the U.S.

When asked by the President what costs manufacturers typically ignore when making decisions on where to make products, Moser mentioned the total cost of ownership. That includes factors such as intellectual-property risk, the cost and time of travel to visit distant suppliers, and the negative impact of separating manufacturing from engineering staff back at headquarters. Using data compiled from 10 manufacturers that compared the costs of products and components made in the U.S. vs. China, Moser told Obama that when measured on price, the U.S. was on average 108 percent higher. When Moser analyzed the total cost of ownership, which includes 28 additional factors, the U.S. averaged 12 percent higher. In six cases, the total cost for the U.S. was lower than China by an average of 22 percent. “The U.S. is a lot more competitive than people realize,” he says. “Over the last several years, firms got caught up in the outsourcing trend without thinking through the costs.”

Manufacturers, including Caterpillar (CAT), Ford (F), and General Electric (GE), are starting to move some production back to the U.S., although it’s still just a trickle. The two factors that drove companies overseas, cheap fuel and labor, no longer favor far-flung ventures. The average price of a barrel of oil has gone from $22.81 in 2002 to $87.48 last year, so the price of shipping finished goods has jumped. China’s wages have risen 15 percent a year in that time. Measured against more than 20 other currencies, the dollar has declined 23 percent since its peak in 2002. As a result, the cost of factory labor in dollar terms fell 11 percent in the U.S. from 2002 to 2010, according to the Bureau of Labor Statistics. America’s cheap natural gas is especially appealing to the metals and chemicals industries, particularly since natural gas prices in China are more than twice as expensive, according to research by the Jefferies Global Energy Team.

As companies have gotten better at reducing inventory and adopting just-in-time delivery, supply chains stretching around the world have started to look like liabilities. The fragility of global supply chains became vividly apparent when the tsunami in Japan and floods in Thailand last year caused major disruptions for companies.

A survey of 150 shipping companies by transportation research firm Wolfe Trahan showed a dramatic shift over the last year in their clients’ thinking. Among companies planning to move production, those considering an increase in outsourcing to China fell to 9 percent in October from 18 percent in April 2011. Those expecting to shift production back to the U.S. rose to 21 percent from 10 percent. Supply chain analysts at researcher Gartner (IT) recently predicted that by 2014, the production of 20 percent of goods now made in Asia and destined for U.S. consumers will shift to the Americas. In a recent study by Accenture (ACN) entitled “Manufacturing’s Secret Shift,” 61 percent of 287 manufacturers surveyed reported that they’re thinking of moving operations closer to customers.

Don’t expect a hiring frenzy if some factories return. “It’s a marginal improvement, not a tidal wave,” says Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity & Innovation, a public policy and economics research firm. Manufacturing employment peaked in 1979 at about 20 million jobs and stands at 11.5 million jobs today. Over the past 15 years, U.S. manufacturing productivity has increased about 4 percent a year, while the economy has grown on average by 3 percent. “If manufacturing grew as fast as the economy, right there the math says you don’t need a single new job,” says Meckstroth.

Source: BusinessWeek

Half of transactions now electronic.

Suncorp’s shared services chief Jeff Smith has ruled out technology outsourcing, describing IT as a central part of the banking and insurance group as more customers go online.

While other major banks have outsourced application and platform development to cut costs and improve efficiency, Smith saw “in-sourcing” as a strategic advantage for the Suncorp Group.

“Financial services companies are, in a lot of cases, IT companies masquerading as banks,” said Smith, who became Suncorp’s CIO in 2007 and CEO of its new business services division in mid-2010.

“Everything from an ATM to an online transaction [is electronic]. Fifty percent of our business now flows through our online system; we’ve gone from ten to 50 in the last three years.

“We’re going to own that – we’re going to design it, build it, maintain it, because it’s too important [to outsource].”

In November, Suncorp cut almost 50 backoffice jobs in what the Financial Sector Union warned was “just the beginning of large-scale outsourcing”.

No IT jobs were affected at the time; Smith said this week that the bank did “not have a strategy around outsourcing with IT”.

Australia’s first bank Westpac made headlines yesterday when it revealed plans to cut 410 jobs and move an additional 150 – including 28 IT management roles – offshore.

An internal memo in November indicated that Westpac would outsource the testing and build of applications and use more managed services contracts to run and maintain them.

Meanwhile, executives from both ANZ Bank and NAB have described a growing reliance on vendors to drive improvements in their core banking technology.

Speaking at a ThoughtWorks conference in Sydney, Smith acknowledged the value of industry partners, noting that Suncorp teams sometimes borrowed external skilled workers for particular projects.

But he ruled out end-to-end outsourcing.

“We’re not taking something from end to end and outsourcing it, so we’re different from a lot of the other big companies,” he said.

“For us, we want to be great at building the assets that touch our customers, which is all of our IT systems.

“Our business transactions flow through our systems, so all of the core pieces that are critical to running a bank or insurance, we’re building and managing ourselves.”

Smith has been a vocal proponent of Agile software development methodology since Suncorp adopted the iterative method about four years ago.

Before going Agile, Smith recalled spending “six months to analyse a project to avoid rework”.

He said the team now delivered new technology at “pretty much the pace of what [the business] can absorb anyhow, and in many cases, ahead of it”.

“We want to do iterations every week; we want our engineers and IT people generating ideas and also to have the vehicle for implementing those ideas,” Smith said.

“You can’t do that if you offshore all of that.

“In a lot of companies, you’re saddled with a lot of outsourcing contracts and if you want to be innovative, how can you do that?

“I think it’s a big mistake to be honest; you wont be able to respond [to demand].”

Source: IT News AU

Ciklum, a Danish innovative IT outsourcing company specializing in nearshore software development in Eastern Europe, presented a general review of the most thought-provoking predictions for the European IT Outsourcing Industry in 2012.

The year 2011 has seen both an extensive use of ITO services in traditional niches such as IT and Telecom, and a rapid penetration of ITO into the innovative lucrative niches such as digital media, mobile computing, online gaming and others.

While it is yet too early to make any forecasts for the 2012 European ITO market volume, increase or decrease in outsourcing activity and the overall IT spending, it is still possible to identify some of the trends that will most likely be ruling the market throughout this year:

1. Lack of domestic resources will boost sourcing decisions

Recent European ITO research conducted by IT Sourcing Europe reports lack of domestic resources and slow time to market (TTM) as some of the key factors that are likely to influence corporate sourcing decisions in 2012. The latest Report on the European STEM (Science, Technology, Engineering and Math) skills by BusinessEurope generally supports IT Sourcing Europe’s findings. For instance, Germany was lacking around 88,000 employees with ICT skills in 2011 and 77% of the Austrian companies reported difficulties in recruiting talent in the technology field in 2010. On the pan-European scale, the estimated shortage of qualified ICT staff is expected to reach almost 400,000 jobs by 2015.

2. Nearshoring will continue attracting Western European companies

IT Sourcing Europe’s latest surveys of the European non-outsourcers demonstrate that in most of the EU countries companies would transfer their IT support / development nearshore rather than offshore if they make such a decision in the near future.

3. ITO service providers will be challenged to offer their clients innovative business models

According to IT Sourcing Europe’s research, a cumulative of 56 percent of today’s in-house development companies polled admitted that innovative engagement models were very important or somewhat important determinants in their future choice of the ITO partners.

By offering innovative service delivery models, ITO providers will be able to fix some of the most critical issues that faced the European ITO buyers in 2011, such as insufficient communication, hidden agenda and delayed delivery.

As more innovative models such as Own Agile Development Team show up, the entire outsourcing concept will most likely change: ITO buyers will be able to in-source innovation and technology expertise while outsourcing processes. This will allow them to enhance and update their in-house knowledge and capabilities and nurture their own pool of highly motivated and loyal cross-border IT staff. In addition, ITO buyers will finally get rid of the concerns related to the loss of managerial control of own IT projects (which is the case in many traditional project-based ITO models).

4. The buzz around cloud will most likely die out

According to CIO.com’s predictions, IT leaders will be looking more critically at the risks and value of cloud-sourcing in 2012. It is expected that more rigid firm policies on cloud regulation will be developed, and companies willing to cloud-source their solutions will scrutinize the privacy laws in the countries to house the data. This will undoubtedly force Central and Eastern European nearshoring hubs to considerably revise and modify their existing data safety laws, but it will not happen in the foreseeable future as if by magic. That being said, no major progress towards cloud-sourcing will be seen throughout 2012.

5. Progressive ITO providers will take over infrastructure outsourcing

Central and Eastern European ITO providers focused on winning the market share rather than “skimming the cream” off short-term Service Level Agreements will slowly but surely be building strong infrastructure capabilities in order to move beyond application development and maintenance work. As a result, 2012 will see more EU companies setting up their IT departments nearshore with ITO providers able to offer the EU-level IT infrastructure and a mutually beneficial networking with other clients. That being said, ITO providers acting as separate High-Tech parks and/or customer-specific Innovation Labs will have a better chance to win clients in 2012 than their “old school” competitors.

6. Increased Backsourcing activity will be observed

More than 10% (cumulative) of the EU IT outsourcers polled reported backsourcing (i.e. bringing outsourced operations back in-house or to a different service provider onshore and/or nearshore) their operations in 2011, according to the “Pan-European IT Outsourcing Intelligence Report 2011.” In 2012, more companies are expected to pull the trigger on this in search of more transparent pricing options, better access to resources and engagement models’ maturity. This generally suggests that the European ITO service providers should be on the watch for backsourcing companies as they can be a good addition to their client portfolio.

Source: Supply Chain Digital

Harvey Nash, the global professional recruitment and IT outsourcing provider, today announces the launch of a new service recruiting senior technology executives for periods of critical business change.

At a time when organisations are facing unprecedented strategic challenges as the pace of technological change forces management to re-evaluate traditional business models, Harvey Nash IT Interim Management has been established to provide hands-on support through highly experienced executives.

The new division provides CIOs, programme managers and senior level executives for fixed periods between six and twelve months, for assignments such as:

managing restructuring within the IT function and beyond

turning around failing projects

filling a ‘gap’ in key management

delivering business benefits from outsourcing IT

injecting new technology or cutting edge skills.

Unlike longer term employees, interim managers bring many years of specialist expertise and intense focus on delivering an immediate positive impact on the organisation. Typically leading a change programme for a fixed term, without adding to the organisation’s ongoing permanent headcount.

The unique Harvey Nash interim consultancy model provides clients with strategic advisory support and periodic transparent performance reviews to measure the positive return on investment.

James Hallahan, COO of Harvey Nash’s UK recruitment division, said: “A recent Harvey Nash Group survey reported that 87% of executives were experiencing change at unprecedented levels. Capitalising on this change is increasingly becoming a priority for CEOs and CIOs alike and we are delighted to be launching a service specifically that will help our clients at such a strategic level.”

Albert Ellis, CEO Harvey Nash Group, said: “An enormous amount of experience and talent in the market is currently not fully utilised. In my experience senior interim managers fill a widening skills gap and can provide unique value to organisations undergoing change as a result of digital and mobile convergence in their markets.

“This new service builds on our existing expertise in general executive management as well as over twenty years of specialist interim business experience through our market leading consultancy, Impact Executives.”

Source: Sacbee

OCEAN CITY – With budget time approaching, a few unexpected suggestions were made this week that could save Ocean City money.

Finance Administrator Martha Bennett said she has received news that Ocean City is at the point to where it is favorable to refund 2005 bonds. If the town were to refund just the callable bonds, it would save $846,000 in interest or if all bonds are refunded $878,000 could be saved.

Bennett furthered that as the town moves forward in projects such as the Boardwalk renovation, the new Art League building and comfort station it would be a good opportunity to combine bonds.

“This is a good time to do these bonds,” she said. “I think we can get a very favorable rate on the Boardwalk and the other bond projects that you have already started.”

The Mayor and City Council voted unanimously to allow Bennett to move forward in refunding and combining bond issuance.

In other news, Acting City Manager/Mayor Rick Meehan announced a time sensitive matter regarding the recycling of cardboard.

“During budget discussions with Public Works and Solid Waste Division, we were talking about an issue with regard to cardboard and how we can possibly recycle that in looking for ways to generate revenue or reduce costs,” he said.

A suggestion was made that a Request For Proposal (RFP) for the collection processing and marketing of cardboard from Ocean City’s commercial sector be sent out.

“In other words, we are sending out a RFP for a private industry to come in and recycle and collect our cardboard that we already collect,” Meehan said.

The RFP will be a non-binding and the Mayor and Council will have the option to accept the proposal or reject any or all proposals. Cardboard would be collected from existing cardboard containers.

“This is done in other areas and there is a way to make this profitable for private enterprise and we think it could save somewhere between $80,000 to $120,000 a year,” Meehan said.

The Mayor and City Council voted unanimously to proceed with a RFP for a private enterprise to bid on to collecting Ocean City’s cardboard.

Source: MDCoast Dispatch

The fate of over a billion dollars worth of information technology (IT) outsourcing contracts is in a limbo after on Thursday’s Supreme Court verdict cancelling 122 licences of telecom firms. For, the order comes at a time when both Indian and multi-national IT firms like Wipro, Tech Mahindra and IBM, besides business process firms such as Firstsource, Intelenet and Aegis, have signed multi-million dollar deals with telecom firms including Uninor, Etisalat DB, Videocon and Idea.

For instance, Wipro had signed an estimated $500-600 million outsourcing deal with Uninor in 2009. Similarly, Tech Mahindra had signed an outsourcing deal from Etisalat, with a revenue estimate of $400-500 million. MNC firm IBM, which has a $1 billion outsourcing deal with Bharti-Airtel, had also bagged a $200-million deal from Videocon-led Datacom Solutions.

An email to IBM and Wipro did not elicit any response.

Tech Mahindra, when contacted, said it was aware of the matter and were “closely monitoring” the development. “At this point in time, we would not be able to offer any comment. Further, as a policy, we do not comment on any details pertaining to client-specific engagements,”it said. Tech Mahindra had won deals from Etisalat and Sistema Shyam. An estimated 500 employees manage the Etisalat deal at Tech Mahindra.

“The verdict will have a domino effect on both vendors and suppliers,” according to Kamlesh Bhatia, Research Director, Gartner. “The only way IT vendors can mitigate a large-scale impact is if the contract had factored in some market risk. Even then, there will be an impact.” Bhatia says these deals were signed during 2009-10, when the telecom vendor segment was much more mature. “Most of these contracts would be structured as partnerships with revenue related to the milestones achieved by the telecom vendors. Many would even incorporate a situation where the company might wind up operations. Some might also have asked for an upfront capital investment from the telcos, which might buffer the vendors. But even then, there will be considerable impact,” he notes.

Firstsource that provides services to telcos like Airtel, Idea and Vodafone says the BPO firm does work with a few telecom players in India. Yet, “the circle that we work have not been impacted by the Supreme Court verdict. There is only one circle where one of our customer has been impacted. But that will have a marginal impact on us.” The company’s telecom unit employs close to 12,000 people.

Jaideep Ghosh, partner, KPMG, believes that barring a few contracts, the entire ecosystem —both IT vendors and tower companies — will be negatively impacted, unless the situation changes for good in the next two to four months. “All the contracts would have an element of risk and payment. But keeping the current situation in mind, many might have to be renegotiated,” he adds.

Aegis says it cannot comment on individual clients. “The overall impact of today’s judgement will be very minimal, amounting to under one per cent of our domestic business,” according to the spokesperson of the Essar Group technology and BPO arm, when contacted. The court has asked the government to take steps within a month on the recommendations given by the telecom regulator, saying spectrum would be allocated through auctions within four months. This time-frame, experts say, will be lend a “breathing space” to the operators to act on the order.

Source: Business Standard

Amid threats of the passage of a bill in the United States that discourages firms from outsourcing overseas, the Technical Education and Skills Development Authority (TESDA) is enhancing its Training Regulations (TR) in Business Process Outsourcing (BPO) industry.

This is to make potential call center and other BPO workers more competitive, efficient and attuned to the demands of the times.

TESDA Director General Joel Villanueva said that while he believes that the bill will not have a dent on the BPO industry, the agency is considering a review of their TRs to ensure a ready pool of skilled workers so that companies will continue to do business in the country.

Villanueva said TESDA aims to expand its training to BPO-related and other emerging skills to minimize possible impact in case the US bill is passed.

He added that TESDA has also strengthened its partnership with the Business Processing Association of the Philippines (BPAP) in training and certifying prospective call center agents, trainers and those engaged in non-voice-based skills such as software development, animation, medical transcription, with future additions of the game development and legal transcription services.

TESDA recently released a P500-million stimulus fund to BPAP for the training aimed at creating 65,000 new jobs.

Villanueva said that TESDA, in partnership with the BPO industry, will also offer scholarships and other assistance directed to develop skills or qualifications with high demand and aligned with international standards.

Retooling and retraining of workers who will be displaced, if there would be any, will also be done so they can land in jobs in other sectors, Villanueva added.

Source: PIA

Combined IT infrastructure services include application hosting, service desk, storage, networking and managed security

Dell Services and Atos have entered into a partnership to deliver a new IT outsourcing services offering that will provide a standardised cloud-based IT infrastructure and global support offering for information services and publishing company Wolters Kluwer customers in the legal, tax, finance and healthcare industries.

Together, Dell Services and Atos will provide a catalogue of standardised, tiered service offerings that enable Wolters Kluwer to support the processing demands and volume fluctuations across its diverse, global customer segments.

The combined offering creates an agile enterprise that can leverage its technology capacity to support the ups and downs during and between industry peak times and will also allow Wolters Kluwer to support that same scalability need with their customers.

Dell Services and Atos will deliver a variety of IT infrastructure services to Wolters Kluwer’s North American and European operations, including application hosting, service desk, storage, networking and managed security.

Dell Services Infrastructure and Cloud Computing vice-president and managing director Kevin Jones said Dell and Wolters Kluwer are passionate about delivering a superior customer experience and unmatched service.

“We look forward to building on our partnership, enabling Wolters Kluwer to quickly bring new services to market, manage their current services more efficiently and drive a consistent IT experience around the world – all through our cloud-based infrastructure,” said Jones.

Source: CBR Online

Everyone agrees the State of Wisconsin has been wasting tens of millions of dollars outsourcing public projects that could be done in-house more efficiently. Every significant study on the subject agrees. The Legislative Audit Bureau agrees. The Governor’s Commission on Waste, Fraud and Abuse agrees. State agencies and key legislators agree.

So what are the Walker administration and Republican legislators proposing? A new bill that would weaken existing state law that requires agencies to assess in advance the costs vs. benefits of outsourcing work.

A bill from Rep. Mark Honadel (R-South Milwaukee) would eliminate the current requirement that projects of $25,000 or more be analyzed in advance to compare costs using state staff vs. consultants. Instead, the state Department of Transportation would only have to periodically review “the continued appropriateness” of using consultants and submit annual reports to the Legislature listing previous outsourcing costs. Under the proposed law, the state would no longer collect real-time data enabling it to quickly identify and prevent waste.

The legislation effectively opens the ledgers only after projects are complete, allowing bad outsourcing decisions. And the way DOT defines a bad outsourcing decision would be largely up to the agency. Under Honadel’s bill, the DOT would set its own project-assignment ratio between in-house engineers and consultants. This would de-emphasize actual dollar cost comparisons in favor of vague administrative standards.

The current outsourcing review law, 2005 Wisconsin Act 89, affects all state agencies, but Honadel’s bill sets looser standards only for the DOT – far and away state government’s biggest outsourcer. In 2010, the state spent $308 million on highway engineering projects, nearly two-thirds of it going to consultants.

Moreover, the governor’s office and majority lawmakers clearly have decided to address the issue of admittedly wasteful outsourcing with a bill that primarily addresses the stated preferences of consultants who benefit from outsourcing, rather than the interests of the general public.

After the waste and fraud commission’s findings, the DOT began discussing changes to the outsourcing law with the American Council of Engineering Companies of Wisconsin, which represents consultants. Yet, the DOT failed to engage the primary source of information on wasteful outsourcing – its own engineering staff.

State engineers oversee all transportation construction projects including outsourced work. The State Engineering Association, whose members include DOT engineers, has over the past decade produced studies showing just how much money is wasted. The association testified to the Legislative Audit Committee and the waste and fraud commission, submitting Act 89 reports and analysis that demonstrated past and current wasteful practices.

Those studies bolstered an analysis by the DOT itself showing state engineers were at least 18% more cost-effective in delivering services than consultants – and that was before cuts made by the Doyle and Walker administrations widened the public-private compensation gap. Meanwhile, outsourcing costs have continued to increase.

Instead of weakening the current law, why not instead deal with the existing evidence of wasteful practices? Indeed, why not strengthen Act 89 to make outsourcing decisions even more transparent? Saving tax dollars is everyone’s issue. If the DOT is interested in real solutions, it should involve all stakeholders, not just those who would gain from less transparency.

Outsourcing is sometimes necessary, but it’s foolish to rely entirely on consultants to decide how best to use consultants. Tax dollars spent wisely are what citizens expect – not more special-interest catering.

Source: JS Online

Bringing an outsourcing partner in-house builds a strong relationship but the contract should always be used to get them to fully deliver, according to Thames Water’s head of procurement.

Speaking to SM, Simon Rutter, head of procurement at Thames Water, explained that a year after outsourcing the firm’s strategic sourcing to Efficio, he is very pleased by the decision. “The main strength is we have consultancy-level capability on tap. So high-quality people, leading-edge methodology and the best data-analysis skills,” he said.

Last year, the utility company awarded the contract to handle all of its procurement, apart from construction materials, to Efficio, which then employed 21 of Thames Water’s procurement professionals and added 15 to 20 of its own consultants to the team.

Rutter explained they have quickly developed a close working relationship as they all work out of the Thames Water office in Reading. But key to getting the most out of them are the incentives.

“Our contract is very heavily skewed to give them incentives for delivering a good deal for us,” he said. “Commercially they get better terms the better the deal they do for us, so that gives them the [motivation they need]. This way they’re incentivised to do the best job while still keeping our stakeholders happy because we’re carrying out quality assessments.”

Earlier this week, it was announced that Thames Water and British Gas are to partner up to promote energy- and water-saving products to their combined pool of customers.

Rutter explained that while there is currently no firm plan, he expects procurement to be involved in the partnership to some degree. “I would expect there to be something that comes down to us from a procurement point of view. So if there are further investments to be made then our guys will get involved in it.”

Source: Supply Management