Letter from IAMC Chairman Bob Zane
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Outsourcing Survey Results Display
Insights for Manufacturing Community
"Manufacturing companies don't outsource quite as much as service companies," writes IAMC Chairman Bob Zane in the report's introduction. "They tend to be more satisfied with the results, and they frequently realize larger cost savings." Among the report's findings:
• Transaction management is the most commonly outsourced corporate real estate management (CREM) function;
• While a recent study by CFO Research Services and United Systems Integrators found that 48 percent of responding executives outsource some aspect of CREM, more than 95 percent of respondents to the IAMC survey do so;
• While most consider their cost reduction and service quality outcomes a success, large companies are more likely to be satisfied with those results than small companies;
• When CREM ranked first or second as a cost of doing business, total outsourcing savings range from 6 percent to 10 percent;
• CREM cost savings of 20 percent or more are five times more common in manufacturing than in the service sector.
Each IAMC member has received a complimentary copy of the 12-page report. To purchase additional copies, contact Joel Parker, IAMC research director, at 770-325-3484 or at joel.parker@conway.com.
Delphi Corp. will invest $40 million in two global technical centers in Korea and China, the company announced in December.
Once completed in 2004 and 2005, respectively, the facilities will employ 740 and bring the company's Asia Pacific portfolio to some 36 facilities: 13 wholly-owned manufacturing sites, 17 joint ventures and six technical centers. Robert Walker, manager of real estate services for Delphi, is an IAMC member.
Delphi China Technical Center Co., Ltd. will be located in Waigaoqiao Free Trade Zone in the Pudong New Area of Shanghai. The center will develop components and support application and systems engineering for both China-based and global customers. As of December 2003, Delphi had experienced year-to-date sales growth in China of nearly 40 percent.
The Delphi Korea technical center – the company's second in the country – will be located in Seoul, and will initially focus on systems engineering for gasoline and diesel engines. Delphi Korea employs approximately 4,300 at six joint ventures and one wholly owned operation.
Among the site selection criteria cited by Delphi were customer proximity, benchmarking, political stability, economic politics, intellectual property, logistics, infrastructure, cost of labor, tax structure, development incentives, educational institutions and skills availability.
"Our customers want increased local support in Asia Pacific, and we're going to give it to them," said Donald Runkle, Delphi vice chairman, lean enterprise and chief technology officer. "The growth opportunities in China and Korea are great, but success in these markets demands a local presence. For Delphi, these new centers will provide us with a more robust value stream and optimize the retu rn on our R&D expenditures."
A new study by two leading economists uses Site Selection as a key source. UCLA's Enrico Moretti and MIT's Michael Greenstone used "million-dollar plant" data from the magazine's archives to look at the ongoing economic vitality of 82 chosen communities vs. the runner-up cities.
The study found that winning cities have benefited from their arrangements, with concessions on land, infrastructure, training and taxes made up for by such factors as increased property values (averaging a 1.1-percent increase), higher public spending in areas like education and faster payroll growth in the plant's industry sector (an average 1.5-percent increase). The economists also noted the "spillover effect" of new plants, as neighboring towns also saw job growth.
"Overall," they write, "the results undermine the popular view that the provision of local subsidies to attract large industrial plants reduces local residents' welfare."
For a complete copy of the report, go to Prof. Moretti's Web site at www.econ.ucla.edu/people/faculty/Moretti.html.
For years the Burlington Northern Santa Fe Railway and its predecessors have moved goods across the plains. Now BNSF is moving 93 jobs, as the railroad shifts its locomotive overhaul shop from West Burlington, Iowa, to an existing 260-worker shop in Topeka, Kan. Some 44 jobs will remain in place at the rai lroad's namesake Iowa site, to perform component work outside the scope of the locomotive operation. The move follows on the January 2003 cutting of 248 jobs in West Burlington and 48 in Topeka, as the railroad weighed the advantages of the two sites for the inevitable work consolidation.
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Economic development officials have cited such factors as Topeka's work force productivity and tax structure in supporting BNSF's Topeka choice. Among other things, the site is positioned closer to a dense network of BNSF stops and depots throughout Kansas, Oklahoma and Texas.
"This really was a merger legacy issue," says BNSF spokesperson Steve Forsberg, referring to the 1997 merger of Burlington Northern and Santa Fe. "Topeka was the historic heavy-duty overhaul shop for the former Santa Fe, and Burlington was the same for Burlington Northern. While we had eliminated other redundancies, this was one of those issues we got around to dealing with late in the game."
And with modern locomotives (like modern automobiles) requiring less maintenance, the extra capacity stood out even more, especially for a railroad with one of the newest fleets in the industry.
Forsberg says BNSF only uses about half of the space at the Topeka complex, where some of the two dozen buildings date back to the 1880s. During the steam era, some locomotive assembly was even done on-site.
Forsberg adds that the system's network of light-duty shops faces no consolidation activity, likening their work to that once performed for drivers by full-service stations.
James O'Neil, assistant vice president for property and facility management at BNSF, and Vann Cunningham, assistant vice president for BNSF, are both IAMC members. So is Bill Thompson, business recruitment manager for the Kansas Dept.of Commerce and Housing.
In December 2003, Denver-based engineering and construction company CH2M HILL acquired Spartanburg, S.C.-based Lockwood Greene for $95.5 million, after inaugurating the bidding at $76 million in November and then upping a British firm's bid by $500,000 to snare the firm in the end.
Lockwood Greene, up for auction after the bankruptcy of former parent company J.A. Jones, has been in operation since 1832, making it the oldest continuously operating professional services firm in the United States. The company employs 2,500 and brings in approximately $600 million in annual revenue. Jeffrey Wagoner, associate director of strategic planning for Lockwood's Naperville, Ill., office, is an IAMC member.
"As a well-established player in the chemical, pharmaceutical, food and beverage, advanced manufacturing and power industries, Lockwood Greene is a natural and strategic fit with CH2M HILL," said Ralph Peterson, CH2M HILL chairman, president, and CEO. With 2002 revenues of $2.4 billion, CH2M HILL has more than 11,000 employees working in 165 offices worldwide.
Showcasing its strength in the biomedical field, Lockwood Greene recently was selected to design the $21-million New Orleans BioInnovation Center – the centerpiece of the New Orleans BioInnovation Center – at a 135,000-sq.-ft. (12,542-sq.-m.) brownfield warehouse site on the city's famous Canal St.
Among other projects, the CH2M's Chinese affiliate recently was awarded a greenfield design/construction project by Tianjin Zhong Huan Semiconductor. The initial complex will be 355,221 sq. ft. (33,000 sq. m.) with a potential future expansion of more than 538,213 additional sq. ft. (50,000 sq. m.).
The firm also was recently one of 10 awarded an A/E service contract by Lockheed Martin, with an estimated annual value of $30 million. And the firm is overseeing both demolition and development work for the Port of Galveston.
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"The 2-percent reduction was limited to manufacturing customers with loads of one megawatt or greater, and the rate adjustment was applied to the firm portion of their load," says IAMC member John Bradley, senior vice president, TVA Economic Development. "The rate change demonstrated to industry that TVA is committed to making rates more competitive and retaining manufacturing jobs in the Valley."
As a wholesale provider of electricity, TVA serves 62 directly served customers and 158 distributors of TVA power. Some 1,500 manufacturers were eligible for the rate reduction. While some distributors supported the reduction in manufacturing rates, others did not, given the impact on residential and commercial customers.
"In general, the large, directly served industrial customers were very supportive of the rate change," says Bradley. "They viewed the decision as a positive step in supporting high-wage jobs, improving quality of life in the region and increasing economic activity."