Long deals are key to contracting out

2 July 2003
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03 July 2003

Successful outsourcing will increasingly depend on long-term arrangements with suppliers selling to only one client, Nikolaus Soellner, vice-president of consultancy AT Kearney in Germany, told delegates.

"In the automotive industry, 70 per cent of component manufacturing is outsourced, so 70 per cent of innovation likely comes from these suppliers," he said.

"But suppliers want to sell their ideas to as many clients as possible. Contracts of at least five years will be needed where suppliers make products for only one client."

Heikki Vappula, director of outsourcing at Nokia Mobile Phones in Finland, said that research and development for innovation is a core competency in the mobile phone industry.

Nokia does most of its research for innovation and development in-house.

But suppliers face the problem of losing their own competitive edge by developing a product or service for a purchaser and then being dropped.

"It works both ways," said delegate David Allcock, contract manager with outsourced procurement provider SureStock, which has taken over procurement for several UK hospitals.

"An outsource provider can lose its investment in innovation if it takes over a client's procurement department and its personnel, trains them to the highest level and then the client later takes the team back in-house."

SMjul2003

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