UK manufacturers' outsourcing spend grows 132%

Out-Law News | 12 Aug 2014 | 12:54 pm | 2 min. read

UK manufacturers spent 132% more on outsourcing contracts in the first half of this year (H12014) than they did in same period in 2013, according to new research.

In total, manufacturers agreed IT and business process outsourcing (BPO) deals worth £130 million during H12014, according to BPO provider arvato's UK quarterly outsourcing index.

Arvato said that the number of outsourcing contracts concluded in the sector during the first six months of this year was up 50% compared to H12013 and that 66% of the deals agreed related to business functions that the manufacturers had never outsourced previously.

Manufacturing and outsourcing contract expert Jayne Hussey of Pinsent Masons, the law firm behind, said that manufacturers are looking towards outsourcing as part of a continuing drive to achieve efficiencies and, in some instances, are looking at outsourcing as an option to help them to meet in customer demand.

"The need to control costs and to satisfy the growth agenda is forcing manufacturers to review their processes and assess whether outsourcing can help them achieve efficiencies or alternatively react to a much more buoyant market where demand is outstripping capacity that the internal resource is able to deliver," Hussey said.

"Increased demand and a more sophisticated approach by manufacturers is not only leading manufacturers to look at introducing new technology into their processes, but it can have a knock-on effect on back-office functions too. For example, manufacturers may have stripped back some of their in-house resources, such as payment processing teams, during the recession but now find that a fuller order book requires them to look to third party suppliers to supplement the in-house capacity they have or even assess whether they can achieve economies of scale by outsourcing that function completely," she said.

Local government bodies spent on average 67% more on the outsourcing deals they agreed during H12014 than they did the previous year, with three quarters of all the contracts agreed during the first half of the year either extensions or renewals of existing arrangements or involved a change of supplier, arvato said.

The arvato data revealed that 34 outsourcing deals were agreed across all sectors in the second quarter of 2014 (Q22014) with a total value of £734m. In the first quarter of this year, 39 outsourcing contracts were signed and were worth £2.1 billion, arvato said. Of that figure, £1.5bn stemmed from public sector outsourcing contracts that were agreed between the beginning of January and end of March this year.

“A number of large individual deals meant that our index showed a bumper first quarter for the industry in terms of overall value, but the volume of new outsourcing activity has remained relatively constant," Debra Maxwell, managing director of arvato UK, said. "Encouragingly, the number of first time contracts remained significant, which shows the continued popularity of outsourcing as a strategic solution, particularly in the private sector. As UK economic growth continues to gather pace, we expect outsourcing to do the same.”

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