By Robert L. Scheier
What do Apple’s manufacturing process and the global sourcing of IT and BP have in common? They both go far beyond cost cutting to speed, best practices, and agility in meeting customers’ needs.
I got thinking about this reading the New York Times excellent story on why Apple, while designing and marketing its hit consumer devices in the U.S., manufactures them almost exclusively in Asia. Cost is, of course, central to its reasoning.
But even if consumers were willing to pay more for a Made in the U.S.A. iPhone or iPad, sources told the Times, Apple couldn’t get the speed or flexibility it needs to flood the market with its must-have goodies before competitors can catch up. “It isn’t just that workers are cheaper abroad,” the Times wrote.
“Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.”
Consider a last-minute screen design to eliminate scratches. According to the Times story, a contract manufacturer roused 8,000 workers from its dormitories to fit the just-arrived screens into the phones. “Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames,” the Times wrote. “Within 96 hours, the plant was producing over 10,000 iPhones a day.” It’s hard to imagine workers in North America putting up with that, at least without overtime rates that would skyrocket prices and/or ravage profits.
Then there is the amount of skilled manpower Apple needs. Again according to the Times, Apple executives estimated that in the U.S. it would take nine months to find the 8,700 industrial engineers needed to ramp up iPhone production as quickly as it needed. “In China, it took 15 days.”
As long as customers want the best products or services most quickly at the lowest possible cost, companies that sell to them will need that kind of agility and scalability. Which brings us to the global sourcing of services.
In BPO and ITO, as in contract manufacturing, low cost is the assumed price of entry. But especially as the outsourcing market matures, the conversation quickly turns to flexibility, agility and skills, especially in specific vertical markets or technologies such as business analytics.
For different needs, that might mean turning to different geographies. For sheer numbers of developers or test staff, for example, India might be best. For cultural or time-zone proximity, a Nearshore facility might do the trick. Because a lot of customers can’t predict what they will need when, the answer is some sort of shared services or global services model with skilled staff on-hand when needed in multiple geographies.
Smart providers and customers are already there, and moving up the value chain beyond mere cost-cutting. In their recent article Shared Services: Savings Alone is so Yesterday, for example, Rick
Bertheaud and Stan Lepeak of KPMG argue that “…more mature organizations are looking beyond simple cost savings” as they move to a mixed internal and outsourced service model. “They seek strategic benefits such as (the) ability to support the growth agenda, e.g., integrating acquisitions, accelerating technology and policy deployment, and enabling innovation into services and business processes.”
After the “the first wave of labor arbitrage (cost savings) and process improvement benefits,” they write, “Continued cost savings come from additional levers such as process standardization, integration of technology and improvement of capital structures.”
More than half of the attendees at Everest Group’s “2012 Global Service Market Predictions” webinar in mid-January said they see global services “as a strategy for managing unpredictability and risk,” meaning it’s a way to adjust to unpredictable spikes in customer demand (or new requirements like that scratch-free screen). And in the Finance and Accounting Space, the consulting firm said that “While cost arbitrage continues to be a key driver, the real buyer expectation…now is to transform processes toward best-in-class performance.”
The good news is that specialized skills, process discipline, and expertise in specific vertical markets and technology don’t grow on trees. There’s room for service providers, and for employees both onshore and offshore, who focus on delivering “transformative” value rather than only low prices.
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