A recent report from market research firm Datamonitor finds that retailers are increasingly relying on business process outsourcing in order to reduce operating costs.

 

According to the report, “Retailing in a Recession: The Opportunities for Outsourcing,” increasing pressure to reduce capital expenditures is driving many retailers to outsource their business processes, including, of course, their call center operations.

By outsourcing some or all of their business processes, retailers can reap the advantages that come with new technologies without having to actually invest in them.

That’s because, in order to attract the most and best clients, outsourcers generally invest in comprehensive portfolios of state-of-the-art, field-proven technologies, so that they can meet a wide variety of business needs.

In addition, as more companies outsource their business processes, they gain better economies of scale, which in turn enables them to cut costs. The report finds that there is increasing competition in the burgeoning business process outsourcing industry – and this, in turn, is leading to a flattening of pricing.

The other advantage of outsourcing is that it enables retailers to focus on the more important aspects of the business – such as merchandising and marketing.

Outsourcing also helps alleviate undue pressure on retailer IT departments, as they no longer need to be as concerned with maintenance and troubleshooting of technology infrastructure, hardware and systems (because the outsourcer manages these, depending on the terms of the contract).

 

“To survive or succeed in the downturn, retailers will be looking for efficient ways to generate revenue by managing the demands of the customer, while at the same time making cost savings across the organization,” says Christine Bardwell,  retail technology analyst with Datamonitor, in a release. “Many are looking to technology and services to help cut the cost of managing inventory, non-critical business processes and store operations.

“Although retailers are outsourcing in a recession, the types of contracts have changed; large scale infrastructure overhauls are less common,” she said. “Instead retailers are requesting a mixture of services on lower value contracts, or transformational deals over longer periods of time.”

 

The report, released in June 2009, finds that cost reduction is the main reason retailers are turning to outsourcing. In the current economic environment, many retailers are witnessing falling sales and rising financial pressures. Thus they are looking to protect margins -- and are seeking any way possible to cut costs.
 

“Cutting down on staff and inventory, the two biggest costs for a retailer, will be the principal areas of focus,” Bardwell said. “Cuts in these areas offer a two-fold opportunity for outsourcers as retailers will be looking to service providers to help cut costs across the business; and will also be short of staff, or having trouble managing correct stock levels so will look to outsourcers to provide the solution.”

 

But retailers must be aware that if they outsource key operations, they do so at their own peril. As the report points out, picking the right outsourcer to meet a company’s specific needs requires a careful and methodical selection process. Outsourcers must serve as partners, even “consultants,” to their clients, keep open lines of communication, and, as the release states, “endeavour to understand the nature of the business in order to work in partnership with the retailer build a close relationship.”

“Retailers are looking for more than just a supplier; they need a partner,” Bardwell said. “A service provider that takes strides to understand the pulse of the organization will win over.”

 

The report also tracks key suppliers of infrastructure technology outsourcing (ITO) and business process outsourcing (BPO) to the retail sector. IBM (News - Alert) is the top outsourced service provider to retail, with 14 percent market share, but the report says this could be set to change as competition in the space heats up.

In June TMCnet's Susan Campbell had an article about how the call center outsourcers that have established centers in Europe, the Middle East and Africa (EMEA) in recent years are prospering despite the struggling global economy. "In fact, these firms continue to remain competitive and profitable and have implemented successful initiatives to maintain costs," she wrote.