Posted tagged ‘manufacturing industry’

HRO in the Manufacturing Industry…Facing the Same Fate as GM Plants?

June 5, 2009

A March 19, 2009 NYTimes.com article stated, “In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent. Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off. In the United States, until recently a relative bright spot for manufacturing despite the steady erosion of blue-collar jobs, industrial output fell 11 percent in February from a year ago”. The Institute for Supply Management predicted in its Semiannual Economic Forecast released in early May 2009 that revenues in the manufacturing sector will decline 14.7 percent this year. General Motors was just forced into bankruptcy.

This all supports what we know all too well…the manufacturing industry worldwide is in serious trouble. But what impact will its decline have on the HRO industry?

Quite significant, actually. Manufacturing has historically been a strong sector for HRO, from the early multi-process HRO contracts entered into by organizations such as International Paper and yes, General Motors, to contracts for single processes such as learning, payroll and RPO in which companies like United Technologies, Texas Instruments and Cooper Tire & Rubber are engaged. The robust HRO uptake by manufacturing organizations was due to the requirement for process standardization across their so greatly dispersed locations, the need to quickly ramp-up in lower-cost regions in which they didn’t have feet on the street, and the challenge they faced in obtaining basic, consistent data across their locations in order to better manage their plants and their workforces.

But as plants continue to close their doors at an alarming rate, or if they are able to remain open continue to lose considerable revenue and workers, the volume of outsourced HR processes will accordingly decrease. For example, our research shows that some single process providers are suffering revenue drops of 20 – 30 percent, and this is closely linked to the manufacturing sector decline. Further, our April 2009 HRO Confidence Index found that near-term pipeline confidence in the manufacturing industry was relatively low, ranking eighth out of 13 industries.

The future doesn’t appear terribly bright either. For the provider community, the manufacturing sector must reach some level of stability when the economy recovers in order for HRO volume and revenue to increase. But in the meantime there may be some provider casualties, particularly within the single process market in which less mature suppliers can rely too heavily on single client revenue streams.

On the buyer side, there’s likely to be much more caution on going down the outsourcing path, in part because of manufacturing organizations’ uncertainty of their own future, and in part because of the questionable financial stability and staying power of providers, especially those who over-rely on single struggling sectors. And inked deals will likely be smaller as revenue is down and workforces have been cut to the bone.

HRO in the manufacturing industry isn’t dead, but it will continue to hit many big road bumps which even a Hummer would have difficulty navigating over or around.

Until next time,

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall