What would you prefer for cost cutting, Offshoring or Process Improvement? (A PI Q&A)

Posted on July 10, 2008


Network Member Question


It is quite common to jump on the bandwagon of offshoring to cut costs.  Some are questioning the productivity of this approach.  What do you think should be given more preference and how would you drive the implementation?


Dr. Ravi Pandey

Executive Coach, Management Consultant (Lean/DMAIC/DFSS, and Business, Product & Operations, Healthcare Transformation)

Orlando, Florida


My Response


Given that 85% of all Supply Chain Initiatives fail to achieve the expected results, and more than 90% of all Outsourcing Contracts do not meet client requirements, your question is one of “diverse approaches to a converging outcome of ineffectiveness.”


While there are many programs such as Six Sigma, SCOR and a growing array of other “best practice” initiatives that are being presented as providing the roadmap to sustainable success through increased efficiency (of which removing costs from the supply chain is a key element), others have opted to delegate the responsibility by entering the realm of outsourcing.


In terms of outsourcing, here are a few interesting pieces of information that I am sure you will find compelling (including a corresponding case reference link):


Well-documented history of outsourcing failures


A Gartner study released at its 2003 Gartner Symposium/Itxpo 2003 stated half of then year’s outsourcing projects would fail to deliver on bottom-line promises. (Information Week, 3/26/2003)


“Few outsourcing mega deals have been successful in the past 10 years – at least 50% fail in the first year and 80% don’t produce any savings.” (Bobby Gill, senior associate, technology, media and telecom group, at law firm Osborne-Clarke) (The Banker, 3/1/2003)


. . . for every raging success, there is a bone-crushing failure. (Insurance Networking News: Executive Strategies for Technology Management, 3/1/2003)


A 1996 American Management Association study of 619 firms found that less than 25% of those that outsourced finance and accounting functions fully achieved their goals of cost reduction, time reduction, or quality improvement. (Government Accounting Office Report, 10/20/1997)


A Gartner Group survey of 180 clients in 1995 found that only 37% of outsourced IT arrangements were viewed as successful in achieving objectives (Acquisition Review Quarterly, 3/22/1999) Publish Date: August 2004


The following link is to a May 2007 article titled 10 Notable Outsourcing Failures: (http://www.financeweek.co.uk/cgi-bin/item.cgi?id=5137&d=320&h=24&f=254)


As to the programs that many organizations rely upon to “lean” their operations, I have included a few links in the Web Resources section below.


Collectively you will discover that either outsourcing a problem or looking for a magic bullet from an external source will not overcome the absence of effective stakeholder engagement (see Parts 4 and 5 of the Dangerous Supply Chain Myths Series).


Procurement Insights Free Access Library: https://procureinsights.wordpress.com/procurement-insights-free-access-library/


Web Resources:



Network Member Closing Comment


Very thoughtful indeed . . . most of the time, offshoring is not working as you point out there is not proper management and process to ensure its performance . . . I rarely get so referenced a response.


Dr. Ravi Pandy




Procurement Insights at Blogged