I’ve said it before and I’ll say it again: outsourcing your IT, whether some or all, requires regular review, oversight, and re-evaluation. There’s numerous reasons as to why that is, but here’s one specific reason: realizing the deal has successfully run its course.

In that spirit, I want to applaud Kellwood, an apparel maker who, by keeping close tabs on its 13-year outsourcing agreement with EDS (now HP Enteprise Services), decided it was time to end that relationship. You can read about the specifics of the deal, or end of the deal as it were, in this great article by CIO.com contributor Stephanie Overby. But in a nutshell, Kellwood had gone through some significant business changes, and in order to meet the new financial and process demands and develop an even more IT shop that was even more flexible, running IT in-house made the most sense. The kicker is that Kellwood has since saved a lot by insourcing—an impressive $3.6 million, or about 17 percent of annual IT expenses, according to Linda Kinder, Kellwood’s CIO.

So I wanted to spend a few minutes focusing on the ways Kellwood got it right.

First off, Kellwood kept on top of its contract with EDS from the get-go. Initially, the apparel manufacturer signed a full IT outsourcing agreement with EDS in 1996. But as its needs changed, Kellwood renegotiated. The most recent iteration, inked in 2008, called for EDS to manage Kellwood’s IT infrastructure and provide some services offshore. And according to the article, that deal had more flexibility built in. It not only asked EDS to relate IT services directly to business processes, the deal included a new process designed to foster collaboration and innovation between EDS and Kellwood.

A year later, however, intense consolidation efforts initiated by new owners and designed to create some much-needed solvency meant outsourcing may no longer be an option.

Once again, Kellwood did its due diligence. Rather than simply end the contract and begin insourcing, Kinder and her team decided to bring in a fresh set of eyes—a third party outsourcing consultant—to evaluate Kellwood’s situation. The consultant spent weeks looking at everything from Kellwood’s market position to different options such as once again re-negotiating the deal with EDS.

Ultimately, the analysis led Kellwood to believe that it would save more money by insourcing, and that by bringing it all back home, Kellwood would be able to more quickly respond to any changes, whether caused by market or internal forces. And that those responses wouldn’t require re-negotiations of any IT agreements.

Kellwood then took its time. It developed a thorough plan that considered all top-level aspects of an IT shop. It was almost like starting from scratch. While outsourcing with EDS continued, a new IT organization was formed, new IT processes were defined and standards, and metrics were established.

And in a move that probably many companies would miss, Kellwood kept the lines of communication open with EDS and its own employees, and found a way to offer most of the EDS professionals positions within the newly developed IT group.
0in 0pt” class=”MsoNormal”>Bottom line: Even though Kellwood had outsourced its IT operations, Kellwood did its IT work. The company regularly evaluated its outsourcing agreement and its outsourcing needs and made well-researched and well-thought adjustments as needed. I’m pretty sure that work ethic will drive its newly formed, in-house IT department.

Source:http://advice.cio.com/beth_bacheldor/kellwood_stayed_on_top_of_its_outsourcing_all_the_way_to_the_end?page=0%2C1

Asia’s contract chip makers will likely see their earnings improve sharply this year as the global economic recovery lifts demand, and as more semiconductor companies world wide, facing pricing pressures and hefty investment burden to build cutting edge factories, look to outsource more production.

Rising outsourcing orders, especially from Japanese integrated device manufacturers such as NEC Electronics Corp. and Fujitsu Microelectronics Ltd., are likely to lift the earnings of contract chip makers Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. of Taiwan, analysts say.

Both NEC and Fujitsu are IDMs traditional chipmakers that handle semiconductor manufacturing in-house. But as they continue to struggle with losses, analysts say they are expected to boost outsourcing to save production costs.

Fujitsu Microelectronics last year unveiled a “fab-lite” strategy, meaning it would outsource production without building new semiconductor fabs. The company inked a deal to outsource production of advanced semiconductor devices to TSMC.

“Fujitsu Microelectronics plans to start and expand 40-nanometer production at TSMC’s fabs this year for use in applications such as digital audio, video, mobile, game and high end servers,” said Adam Blankenship, a spokesman at Fujitsu.

He said the Japanese company agreed in August to develop advanced 28-nanometer process technology of logic chips jointly with TSMC and outsource production to its Taiwanese partner. The company, however, declined to disclose how much of its total chip production is outsourced.

“Integrated device manufacturers are facing tighter budget constraints like never before. For them to survive it is imperative that companies follow a two-pronged strategy, of outsourcing manufacturing of next generations nodes to specialist foundries and co-developing process technology to meet the time to market goals,” said Akkaraju Venkata Sridevi, analyst at California based consulting firm Frost & Sullivan.

NEC Electronics spokeswoman Kyoko Okamoto said the company plans to “minimize [fab] investment down to a necessary level and adopt a compound IDM structure, utilizing both in-house production and outsourcing.” She declined to disclose further specifics and the names of its partners.

Research firm Nomura International expects revenue in the contract-chip market to jump roughly 30% this year to at least US$20 billion from US$15 billion in 2009, driven by IDMs’ increasing moves to outsource production. The firm expects growth in the contract chip market to outpace growth in the overall semiconductor market this year. Gartner expects revenue in the overall semiconductor market to rise 13% this year to US$255 billion from US$226 billion in 2009.

Nomura analyst Rick Hsu expects outsourcing orders by IDM for advanced technology nodes such as 45 nanometer and below—to contribute US$2 billion-US$3 billion in revenue to the contract-chip making sector this year, or about 10%-15% of total contract chip making revenue.

A chip’s transistor components and the spaces between them are measured in nanometers. The smaller and more closely transistors can be packed together, the more powerful the chip.

Asian chip makers are upbeat about their growth prospects this year. Both TSMC and UMC, the world’s two biggest contract chip makers, have reported sharply improved earnings in the fourth quarter, reflecting optimism surrounding the sector.

Last month, TSMC reported its highest quarterly net profit in two years, underpinned by a recovery in global chip demand. TSMC said its net profit for the three months ended Dec. 31 was NT$32.67 billion, up from NT$12.45 billion a year earlier. TSMC’s factories are now operating at full capacity, and there is a capacity shortage particularly in advanced technologies, TSMC Chairman Morris Chang said.

UMC Spokeman Richard Yu said the company’s revenue from IDMs has been about 20% of UMC’s total revenue in the last few quarters.

“This is actually very positive since it shows that IDMs are continuing to come to foundry despite having their own fabs, since UMC can offer competitive yields/cycle times with the added advantage of manufacturing flexibility. We however are still working on improving the revenue contribution from Japanese chip design companies,” Mr. Yu said.

UMC, the world’s second-largest contract chip maker by revenue after TSMC, this month posted a net profit of NT$4.4 billion for the three months ended Dec. 31, reversing a record net loss of NT$23.51 billion a year earlier.

“In 2010, both the foundry industry and our operations will have very positive growth,” UMC Chief Executive Shih-Wei Sun said. “We raised our capital expenditure in expanding capacity and in research and development in advanced technologies.”

Both TSMC and UMC declined to provide specific earnings forecasts for this year.

Still, competition could get more intense with the emergence of another industry player. Globalfoundries, majority owned by Advanced Micro Devices Inc. and Abu Dhabi-funded Advanced Technology Investment Co., bought Singapore-based contract ship maker Chartered Semiconductor Manufacturing International Ltd. last year for US$1.8 billion in cash. The company has said the overall macroeconomic and chip foundry markets are very strong and it sees strong growth shaping up for 2010. It is targeting double-digit revenue growth, without providing further specifics.

“What’s interesting is the further movement by integrated design manufacturers to adapt the ‘fablite’ model,” said Douglas Grose, chief executive at Globalfoundries. “A lot of that could be centered around Japan and some of the companies that have consolidated there, to get their growth and capability in place, they need to move towards the ‘fablite’ model. The outsourcing trend will continue.”

Source:http://online.wsj.com/article/SB10001424052748704751304575079292109567342.html?mod=WSJ_Tech_LEFTTopNews