Outsourcing trend to cut costs, improve efficiency.

Posted On Tuesday, 29 July 2003 02:00 Published by eProp Commercial Property News
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Outsourcing of non-core business functions continues to show substantial growth as companies seek to rein in unnecessary costs and to improve the bottom line.

Mark RotterAn increasing number of organisations take the view that valuable time and resources can be saved by focusing on their core competencies and delegating non-income-earning functions to facilities management professionals.

 The growth of facilities management in both the private and public sectors spans a range of activities and sectors ranging from catering, cleaning, maintenance and security to fleet management and administrative functions, among others.

 Customers are stepping up demands for optimum service.

 "We are seeing more contracts coming out to tender for the second or third time, either to test the market or change supplier and perhaps alter the scope of services," says William Gould, regional director of the Cape region for Drake & Scull Facilities Management.

 "While it signals to the market that the overall strategy of outsourcing is a success, companies are growing more sophisticated in their demands and are no longer satisfied with having only their convenience needs met."

 As the emphasis on innovation increases, suppliers of facilities management services are positioning themselves to provide more cost-effective services in new and better ways, he says.

 Gould says the outsourcing trend has been driven by the need of local organisations to refocus on their core business, and their growing realisation of the operational benefits of outsourcing, including a positive impact on the bottom line, change management, human resources and industrial relations issues.

 As facilities management contracts grow in complexity, more risk is likely to be transferred to facilities management companies. In such risk-sharing arrangements, facilities management companies are contracted to deliver a specified service at a fixed price for the period of the contract.

 The suppliers of services have to take into account that the level of demand from the client may increase during the contract period, along with the additional input costs and associated liabilities, for which they need to make budget provision.

 Gould says the principle of accepting and quantifying the financial risk in pricing will increasingly become part of a vendor's responsibility.

 The prime responsibility of the client at the outset of the contract is to set up a service level agreement that specifies the outputs and the available spend, and the onus is on the vendor to deliver the services at those levels at the best value for money.

 The move towards IT outsourcing is an integral part of the global outsourcing trend.

 Professional Provident Society Insurance recently outsourced the supply and management of its entire IT infrastructure to Symetrix Information Technologies, in a three-year deal that it says will lower costs and improve its IT operations.

 Some analysts predict that no more than a handful of companies will be running their own IT infrastructures a decade from now.

 Mark Rotter, senior analyst at BMI-TechKnowledge, says that buyers are becoming more discriminating, searching for business benefits rather than only smart technology.

 "It is services and not technology alone that will differentiate vendors," says Rotter.

 Symetrix MD Ben Swartz says: "We are moving into a new era of outsourcing where services providers and receivers pursue only those relationships where the opportunity for mutual benefit and enduring relationships exist."

       

Last modified on Thursday, 22 May 2014 10:38

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