After seeing BP save an estimated $500 million by consolidating 40 outsourcers down to five, many other global corporations are looking into similar reductions to cut costs and reduce risk. "The next 12 months will see a fair number of deals triggered by vendor consolidation," says Gartner's research chief in India.Applied Materials, Verizon, Best Buy, Home Depot, ExxonMobil and Cardinal Health were identified as other multinationals evaluating significant reductions in their outsourcing teams, according to a report last night in the Economic Times of India.
Applied Materials appears to be well into its analysis, as the Economic Times quoted the CIO of the $9 billion semiconductor-equipment maker, Ron Kifer, as saying, "Having fewer vendors helps drive more consistent processes and service across the organisation and simplifies your own internal administration." The article said Kifer sees particular promise in reducing the number of outsourcers currently involved with Applied Materials' data centers and telecom services.
In addition to lowering costs significantly, the consolidation initiatives are expected to help clients achieve two other key objectives: establish stronger relationships that are truly strategic with the partners making the short list, and reduce governance and contract-management costs.
The creation of strategic relationships is becoming particularly important as clients look to outsourcing partners to deliver not only technical expertise but also deep-domain knowledge and specialized industry insights, and the need to simplify and reduce costs for governance and compliance is also becoming increasingly important as global companies are anticipating increased regulation and oversight from the current U.S. administration.
It's interesting to note that the types of companies cited in the Economic Times article that are looking to make these strategic consolidations are spread across a range of industries:
A Fortune 500 bank is evaluating options to reduce its infrastructure management and data centre partners from 10 to two, while one of the world's top five retailers is looking at reducing its technology vendors from around 80 to 25-30, a person aware of the development told ET, but declined to give details.
A Fortune 50 drugmaker, which presently has about 100 vendors doing tasks like data mining, drug distribution and supply chain management, wants to reduce its vendor list by at least 60%, another person said, requesting anonymity.