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Electronics Production | February 16, 2007

Outsourcing still increases<br>but many contracts fail

KPMG conducted a survey and asked almost 650 different organizations. Eighty-nine percent of respondents to a KPMG study say they plan to maintain or increase their present level of sourcing.
“Outsourcing is not slowing down, in fact it's growing faster, " says Pradeep Udhas, Global Head, KPMG Advisory Services.

“This industry is going to go much beyond where it is today", he added.

According to KPMG customer respondents believe that service providers generally make positive contributions to the success of their organizations. Forty-seven percent believe that their service providers brought experience to their business that they previously did not have. Forty-two percent of the organizations believe that their sourcing contract has definitely improved their financial performance, and 27% said that sourcing has definitely improved their competitiveness. The study also found that 87% of respondents believe that the statement “as many as half of sourcing deals fail" is a gross simplification, while only 13% believe that it is an appropriate view. Regarding the criteria of measuring the success or failure of sourcing arrangements, interestingly 72% of surveyed customers said that either they do not have a defined list of measurement criteria or they do not share them with their service providers. In most sourcing agreements, cost is often a major determinant of the success or failure of a project. But 90% customer organizations didn't accurately understand the opportunity costs of the selection process and 79% of such organizations couldn't accurately identify the internal financial cost of the sourcing selection process. The study also found that 60% of customers and 59% of service providers believe that problems encountered during sourcing are related to people involved in managing the project. Only 12% of customers and nine percent of service providers said that sources of problems in outsourcing contracts are only technology related.

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