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Business Process Outsourcing can prove invaluable to manufacturers and logistics organisations looking to enhance business and operational efficiencies and to reduce wastage.
Manufacturing & Logistics IT spoke with TATA Consultancy Services Martin Nurser (pictured) about the potential benefits of such a strategy and the problems that can befall companies that cut IT spend or plump for a go it alone implementation approach.
When companies feel the need to cut back on their overall expenditure, IT can often be a prime target. However, according to TATA Consultancy Services Martin Nurser, this can prove to be a very short-sighted strategy, as the right software and implementation can effectively militate against the very constraints that prompted spending cuts in the first place. Cutting back on IT spend can be an easy thing to do because many directors allocate quarterly spending levels for their organisations, and the temptation can be to take budget away from the quarters to come, he said. Then, as a consequence, the IT spend can suffer, and this in my view can prove to be a less than sound strategy. For example, it can reflect a lack of understanding as to the potential benefits of implementing or upgrading IT; such as the ability to reduce wasteful practices and enhance profitability.
However, Nurser believes that if a company invests in IT, it has to do so for the right reasons. IT has to add value to your business, and this value can be monetary or just in terms of pace or speed to market, he said. Many companies have in-house IT departments that can advise on what they see as the best route forward in terms of IT strategy, but nevertheless the status quo is often preferred over the option to develop the IT systems even though IT development could generate considerably more value for the business. And when it comes to implementing such positive change, some companies will shy away from investing in the expertise of consultants, such as TATA, to come in and undertake and oversee IT implementation. Instead, they may tend to survey the market, look at a number of potential systems suppliers and implementers, get costs back and then look at ways of implementing the systems themselves. However, this can prove highly detrimental because the people doing the implementation internally are likely also to be doing their day jobs at the same time, and have less than fully reliable expertise in the systems they are implementing. Therefore the implementation is often not done as quickly and expertly as it could be.
And there are additional potential pitfalls to be aware of, according to Nurser. What you also find is a lot of companies implement, say, an ERP system and pay for licences that come in bundles. There is a danger here that users may actually be paying for software that they havent actually got, or are not fully utilising, within their business because of the nature of the implementation they went through in the first place. I think a lot of companies, and certainly many of the higher-turnover companies, have recognised the opportunity that IT and Transformational Business Process Outsourcing (BPO) can bring to their businesses. Sadly, there are still a lot of companies in the UK and in Europe that still dont recognise the true benefit of IT in terms of what it can really achieve in the form of increased business process efficiencies and reduced wastage throughout the organisation.
Leveraging cost-saving benefits
According to Nurser, when some IT managers draw up an IT implementation business case to take to the board for approval, there is a tendency to drive down the cost of the implementation through the Requests for Information (RFI) or Requests for Proposal (RFP) process. But this practice can prove to be a short-term money saving fix, when what they should really be considering is how an IT package could actually leverage major cost saving benefits for the company over the medium term, he said. Take Warehouse Management Systems and the issue of stock control, for example. Many manufacturers and logistics professionals need to broaden their vision in terms of how much cash that could generate for the business by reducing the stock levels, and how much wastage could be taken out of the business in terms of leakage, etc. and we can be talking about big numbers here and the larger the company the bigger the savings are likely to be.
Nurser emphasised the potential dangers of adopting a short-term view of IT. Companies should instead recognise the potential value of a Transformational Outsourcing approach and the value of state-of-the-art software functionality; an alternative stance can result in a company regime that is ill equipped to reduce wastage, increase production, improve forecasting efficiencies and improve the bottom line.