In today's technology-saturated marketplace, the number of outsourcing opportunities and incentives has surged. Indeed, in a recent survey by Accenture of more than 800 executives in the United States and Europe, 86 percent of respondents said outsourcing gave them more control over business results in a variety of critical areas. Most important among those areas, they said, was the ability to plan. And while the executives—as might be expected—included cost-cutting on that list, they also reported gaining equal levels of control over reliability, cost variability, and effective implementation of ideas. A full 55 percent of respondents, moreover, said outsourcing allowed their companies to implement new strategies and business process changes at a faster but more controlled rate than was possible before.

According to outsourcing experts Armstrong & Associates, 78 percent of North American companies, 79 percent of Western European companies, and 58 percent of Asia Pacific companies now use third-party logistics services. So far, those activities have mostly been focused on warehousing, outbound and inbound transportation, and customs brokerage. But that's about to change—quickly and dramatically—as a handful of equally critical supply chain functions become outsourcing candidates. This new frontier in outsourcing includes:

Procurement —The number of companies that outsource their procurement operations is projected to grow by more than 100 percent within three years. (See chart.) Moreover, 69 percent of respondents to a recent international survey conducted by research firm IDC indicated that they already are outsourcing some procurement activities, and more than half expect their spending on procurement outsourcing to increase within 12 months.

The success of Thames Water, the United Kingdom's largest water utility, shows why procurement outsourcing is so attractive. Thames outsourced its supply chain operations, including the procurement of more than 5,000 different items. As part of a larger transformation program, those outsourcing moves contributed to a $150 million savings in overall operating costs, a 35-percent drop in the cost of service and materials, a 50-percent reduction in inventory, and significant improvements in customer service.

Order Fulfillment —According to Forrester Research, 85 percent of companies with eCommerce sites have no electronic connections between their front and back offices. Providers of order-fulfillment services can help companies surmount such problems by linking their own supply chain capabilities with their customers' inventory and planning systems. Outsourcing order fulfillment also is an increasingly popular post- merger-and-acquisition strategy. One example: Following its absorption of Compaq, Hewlett Packard's European Personal Systems Group needed to rapidly integrate the two companies' supply chains. Part of the solution was to outsource much of the group's order-fulfillment operation. This made it possible to quickly reduce costs with little up-front investment. The merged group now manages greater volumes with fewer people, and personnel costs have fallen by more than 30 percent.

Training —The average productivity of knowledge workers is significantly lower than that of assembly-line workers. Many experts agree that the best way to improve productivity is through one-on-one training—a difficult and often cost-prohibitive undertaking. However, the combination of faster, more robust networks and advances in online content design has changed individuals' access to high quality eLearning material, and given rise to a booming market for outsourced eLearning services. IDC estimates that worldwide, Internet-based corporate learning is growing by nearly 70 percent per year.

One particularly innovative user of outsourced eLearning is communications company Avaya, which outsourced its training operations in 2001. Since then, the amount of time it takes customers to make full use of Avaya technology has fallen by 50 percent.

Supply chain functions associated with a specific product or customer segment —When AT&T began selling prepaid telephone calling cards, it became clear that the supply chain competencies needed in that area were very different from those required for other telecom services. AT&T therefore decided to outsource all of the supply chain operations associated with its prepaid calling card business. As a result, overall supply chain costs fell by more than 20 percent, warehouse productivity increased by 25 percent, raw materials inventories dropped by 25 percent, and customer service improved.

Outsourcing post-sale service and warranty management —More and more post-sale service and warranty-management activities are being outsourced to third-party providers, including service-parts planning, inventory management, forward and reverse logistics, parts sourcing and procurement, and customer service. UPS Logistics Group, for example, manages some of those activities for a host of clients. One of these is IKON Office Solutions, which leverages the provider's distribution center, labor, and truck and aircraft assets to deliver parts to field service personnel.

Companies today are quick to recognize the potential of outsourcing and of supply chain management. They are embracing both for their ability to contain costs, support strategic planning, and improve overall business performance. Small wonder, then, that more and more supply chain management functions are emerging as outsourcing candidates.