Insufficient Outsourcing Threatens Auto Suppliers’ Ability to Compete, According to New Accenture Research
Outsourcing Viewed as a Temporary Solution Versus Long-Term Strategy
Traverse City, Mich., August 8, 2001 – In an era when hyper-competition is forcing automotive suppliers to create more innovative products and systems at lower costs, new research by Accenture (NYSE: ACN) reveals these companies have overlooked strategic outsourcing of non-core business activities, such as payroll, procurement or logistics.
“Our research indicates that the industry turns to outsourcing as a quick-fix, often aimed at relieving immediate business and IT pressures,” said Randy Barba, a partner in the Accenture Automotive industry group. “Only a handful of companies recognize that aggressive and strategic use of outsourcing is important to their overall strategy.”
Just 21 percent of those surveyed anticipate increasing their outsourcing initiatives, and none discussed undertaking additional outsourcing as a complement to their competitive strategies. One company expects an increase only in Europe, while another plans to introduce outsourcing within six months. Still a third supplier plans to seek outside help as a result of company growth.
“OEMs are seeking ever greater levels of product innovation at lower costs from suppliers,” said Barba. “Companies that outsource more of their non-core functions in order to focus on enhancing design, production and manufacturing have a better chance of surviving in a tough climate that mandates it.” He added that the right recipe for outsourcing can provide a supplier with a 10 to 25 percent reduction in affected operating costs as well as reduce assets.
The survey further revealed that 74 percent of those companies that currently outsource said they will continue to do so, but they expect outsourcing activity to remain at the same level in the next year.
Additionally, while 73 percent of those polled reported outsourcing at least one business process (e.g., benefits), 27 percent said their company was not currently engaged in outsourcing of any kind. Within this group, no significant movement toward future outsourcing was evident.
When asked which benefits of outsourcing were most important, respondents ranked them in the following order:
Cost containment/predictability (23 percent) Access to human capital and leading technology (19 percent) Flexibility (15 percent) Strategic redeployment of resources to core activities (15 percent) Cost reduction (15 percent)
“Companies will benefit from more closely aligning strategic outsourcing initiatives to their growth plans and using outsourcing to transform cost structures and service levels,” said Barba.
About the Research
Accenture conducted this survey to obtain an understanding of current outsourcing trends in the automotive supplier industry. The poll of industry executives, which was completed in a three-week period, sampled 30 automotive suppliers with revenues ranging from $500 million to $10.5 billion.
Accenture is the world’s leading provider of management and technology consulting services and solutions, with more than 75,000 people in 46 countries delivering a wide range of specialized capabilities and solutions to clients across all industries. Accenture operates globally with one common brand and business model designed to enable the company to serve its clients on a consistent basis around the world. Under its strategy, Accenture is building a network of businesses to meet the full range of any organization’s needs – consulting, technology, outsourcing, alliances and venture capital. The company generated revenues before reimbursements of $9.75 billion for the fiscal year ended August 31, 2000, and $8.67 billion for the nine months ended May 31, 2001. Its home page is http://www.accenture.com.