The manufacturing sector that has been under continual cost pressure in the UK for three decades, is now increasingly under threat from low wage economies, especially in Eastern Europe. Just-in-time processes and supply chain management both dictate that the sector is also highly document-dependent. Human resources (HR), and finance and accounting, are two functions that have been strong targets for document services outsourcing, where the shortening of days to payment, along with the cost of accounts processing, can have a major impact on cash flow in a sector where margins have been pared to the bone.
Due to the sector's suppressed profitability levels, manufacturing has been applying itself to streamlining processes and taking advantage of document management outsourcing for many years. Indeed, manufacturing firms may be regarded as pioneers of globalisation and 'offshoring', and have high penetration of outsourcing provision generally. This market maturity means that the sector is focused on taking outsourcing to the next stage - refining the model, its application and delivering greater efficiencies and cost savings. We will illustrate two key examples of how this is happening - firstly, document services outsourcing in the automotive sector; and secondly, the topical issue of offshoring.
Taking documents online
Several leading car manufacturers have executed particularly successful document services outsourcing projects over recent years. For any manufacturer in the automotive sector, the efficiency of the information flow between head office and its dealer network is paramount. Let us examine the real-life example of a leading UK-based distribution company of an international car manufacturer. The company identified several years ago that the finance function at its head office was spending much of its time handling requests from its 180-strong dealer network for copies of documents that had already been sent to them in the post but had been mislaid, such as parts invoices and credit notes. Head office had various systems for storing important documents in image format, but these could only be reproduced in paper copy. So the stored image would have to be retrieved from the internal system, reprinted and then faxed to the dealer. Parts invoices can be over one hundred pages in length. This process cried out for an automated, secure document delivery solution to free up internal resources and streamline the business process.
Furthermore, another process that was identified as requiring automation was the delivery of parts consignment notes to the dealer network. Both from a security and technology perspective, it was not an option to give dealers access to Head Office's internal document repositories. The most sensible option was to harness an online document services solution.
As an outsourced, remotely hosted web-based application, implementation was rapid and required no hardware installation or specialist in-house IT skills. Dealerships deal directly with the third-party for support, and when a new dealer comes on board, the third-party even handles their integration into the online system. A permissions structure is also managed by the service provider, following strict guidance on each user's requirements.
So, as documents are created at Head Office, they are passed to the outsource provider for conversion into digital format and uploading into the online system. The dealerships are then given passwords to log into the system and can retrieve financial documents online by 9am the next morning, and the Parts Managers can view consignment notes from 7am. All documents are accessible to approximately 200 sites including the dealer network, who have simultaneous, instant access and who can print and redistribute documents as required.
Additionally, the dealer network needed the option of downloading invoices from the online system directly into their internal accounts systems. Each dealer was spending significant amounts of time re-keying invoice data, which also left scope for human error. The online system also provided a way for dealers to remove this manual process.
All car dealerships are obliged to keep their business documents for 7 years. For large dealerships, this can mean having an entire warehouse of paper! So as a further service to its dealer network, documents are removed from the online solution once they no longer require frequent retrieval and the outsource services provider archives them to CD or DVD. Furthermore, it is not cost-effective to keep vast volumes of data online that is not required - so the car manufacturer is using its online resource for an 'active' document repository, and secure offline storage for long-term document retention.
Hard-dollar savings
Harnessing outsourced document services has allowed this leading car manufacturer to take an important step towards paperless invoicing, with the associated efficiency and environmental benefits. Further work in collaboration with the dealer network could eliminate paper altogether.
On a conservative model, the firm estimates that the invoice download functionality of its online system has saved each of its 180 dealerships at least 12 days work per year, which equates to around £70/day in personnel costs, and therefore a total saving of £150,000 per year. For the larger dealerships, the savings would undoubtedly be higher.
Additionally, the finance department at Head Office has been relieved of a time-consuming administrative job which has freed them up to focus on value-added tasks; plus costs have been reduced by eliminating faxing, postage and reprint expenses. The manufacturer has significantly boosted the level of service that it provides to dealers, who now have immediate access to information that was previously only available on Head Office's internal system. This has made each of their accounts departments more efficient, plus online delivery of parts consignment notes has made the Parts Manager's job much more efficient.
Business Process Outsourcing - an evolving model
A second area where the manufacturing sector has seen several pioneering projects is Business Process Outsourcing. BPO and document management outsourcing, as described in the automotive example above, should not be confused. Using a third-party to remotely host and manage an electronic document archive is not BPO. Outsourcing employee benefits management, for instance, is BPO. However, the flow of documents within an outsourced business process is critical to it delivering quality and risk management to the client organisation, and commercially viable cost management for the BPO provider.
The cost pressures in manufacturing have steered many financial managers away from capital expenditure and towards methods of spreading the cost of business processes. Using modern IT to manage, control and automate business processes helps corporations to eliminate inefficiencies and, of course, take advantage of skilled workers in lower cost economies. The pros and cons of outsourcing and offshoring have been much discussed, and even over the last few short years, the sophistication of both purchaser and provider has grown exponentially. But there remain risk factors when any business process - or element thereof - is moved out-of-house. For instance, many manufacturers were sceptical when outsource service providers started full-scale offshoring of transaction processing to delivery centres in India, pointing to fears about security and lack of service transparency. They felt they were losing control of their third party relationships. So nowadays, discussion has turned to how providers can refine the outsourcing model, finding the right level of business processing that should remain onshore, as opposed to that which can be confidently offshored.
A key area for refinement emerged as the capturing, managing, delivering and retrieval of the documents that are necessary to manage every business process. If proper attention is not given to how documents are handled in the outsourced process, this can expose the service provider to a major potential cost centre, and the client to a heightened risk. That information security is a clear and present danger and has recently been exemplified through the tabloid furore about personal records being sold by unscrupulous staff in an offshore BPO centre.
The onshore/offshore hybrid
The way in which the leading service providers are allaying such security fears and giving manufacturers a greater sense of control is to use an onshore/offshore hybrid model to secure sensitive data and documents. All paperwork is digitised in the UK, which is something of a revolution in the outsourcing model. Many firms still operate a post-room and expose themselves to significant risk, cost and inefficiency by having copies shipped abroad to be handled by their third-party provider, with paper originals waiting around for digitisation. By outsourcing the process from the beginning, processing can take place electronically and risk is minimised at the earliest possible stage. Web-based technologies are then being harnessed to electronically transmit the already digitised documents to the offshore processing centre.
In this way, secure onshore document services are being combined with the cost-efficiency of offshoring to deliver increased security and speed of transaction processing.
Although this model is already delivering successful BPO projects for manufacturers where the key requirements are tight document security and rapid document distribution to offshore processing centres, it must be said that overall, the sector comes in below average on BPO adoption. Research from Handysoft Corporation from early 2005, revealed that 48% of Europe's top 10,000 companies are actively considering BPO, but just 15% of those companies have outsourced business processes. In manufacturing, only 42% were considering it, and 13% had already outsourced. This is perhaps testimony to the cautious nature of early BPO adoption, but is likely to increase once leading players publicise the benefits of their onshore/offshore outsourcing projects on a greater scale.
Pushing the boundaries
In conclusion, outsourcing is very well-established in the manufacturing sector but there are several refinements taking place to the model, bringing real operational efficiencies and cost savings. Outsourcing has come to mean many things - from having a single, defined task processed out-of-house (such as outsourcing a document archive) to passing full functional responsibility to a third party (BPO).
In the first example, regardless of whether the documents must be kept by law or to streamline operational efficiency, technology is revolutionising the way that documents are captured, managed, preserved and delivered. Outsourced, web-based document solutions are paying dividends in many areas, such as helping car manufacturers manage their dealer network more efficiently.
Document control also plays a key role in business process outsourcing. There is certainly no turning the clock back on offshoring in manufacturing. The combined cost and available skills benefits of sending business processing abroad - at least in the back office - is so compelling that to ignore it would be commercial suicide. But in the increasingly regulated business environment, putting work into another legislature without suitable safeguards is untenable. There is already much interest and early practice under way to combine the security of an onshore information and document guardian, in combination with the undoubted advantages of offshore processing.
