Business white paper
Outsource to reduce costs
Review software publishing and fulfillment myths and misperceptions
Business white paper
Table of contents
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Reduce costs—outsource
Shatter the myths
Decrease costs, increase satisfaction
Work with the best
Business white paper
Page 1
Examine some of the common myths of outsourced
software publishing and fulfillment services. And learn
how outsourcing production and distribution processes
delivers immediate quarter-on-quarter bottom-line
improvements, while streamlining operations and
increasing customer satisfaction.
Reduce costs—outsource
For many, the idea of turning production and fulfillment operations over to a service
provider is equivalent to losing control and spurning customers. It’s a common misperception
that outsourcing manufacturing and distribution leads to added costs, loss of control, and
unhappy buyers.
In reality, outsourcing these functions to the right service provider can help you significantly
reduce total fulfillment and logistics costs—while improving delivery capabilities and
product quality.
Shatter the myths
One company that ships 110,000 orders
each year realized savings of $400,000
USD by outsourcing to Hewlett Packard
Enterprise (HPE). Another client
experienced 30% savings in freight and
per-order charges, and dramatically
reduced turnaround times through its
outsourcing agreement with HPE.
A company with production sites in North
America, Europe, and Asia had a staff of
about 50 people supporting in-house
management and production operations.
Outsourcing the software manufacturing
and distribution operations for this
company resulted in annual savings of
some $3 million USD in direct salaries,
overtime, administrative support, and
benefits.
Consolidating orders yielded a 30%
per-order cost saving through reduced
freight charges for one HPE client who
had multinational next-day delivery
requirements.
Myth #1—Outsourcing software manufacturing and distribution is more expensive than
in-house production and fulfillment.
Reality: Outsourcing can save you money.
Many enterprise application developers and high-tech equipment manufacturers mistakenly
believe they can produce their product less expensively than an outsourcing service provider. In
fact, a careful examination of the numbers reveals this is not necessarily true.
Labor savings: Labor is a primary cost driver for finished products. As most companies
maintain their support staff throughout the entire product lifecycle, the average cost of labor is
an especially large part of the per-unit price. Working with an outsourcer, these high costs are
amortized over multiple companies by using a flexible, just-in-time workforce, which can reduce
your company’s labor-related outlays and the number of required in-house personnel.
Material savings: The cost of material can also be substantially reduced as outsourced service
providers can leverage their considerable procurement power and provide the best prices
on commodity materials such as print, packaging, electronic media, and common hardware
components—prices that your company may not be able to negotiate.
Shipping savings: Outsourcers often leverage relationships with a worldwide network of
carriers for attractive freight rates. And skilled logistics professionals can find additional ways to
keep shipping costs down.
Additional savings: Outsourcing delivers greater savings when initial and ongoing investments
are eliminated or reduced. In-house production requires significant purchase of plant and floor
space. By leveraging global delivery centers and capital equipment investments, you get a lower
unit cost, and flexible and scalable capacity to support your volume spikes.
Outsourcing to a full-service supplier reduces your need to invest, maintain, and update
expensive business systems and electronic libraries to facilitate managing the software supply
chain. In addition, a collaborative approach with an outsourcer can help identify cost-cutting
opportunities that a company might not uncover on its own.
Business white paper
Page 2
Myth #2
Outsourcing compromises your cash flow position because of required cash outlays to
the service provider.
Reality: Outsourcing can improve your company’s financial health.
Inventory management is a huge
challenge for most companies. Print
production equipment alone can
cost in excess of $1 million USD, not
counting maintenance and support
personnel costs. One client—who ships
about 200,000 orders annually— had
leased manufacturing facilities in three
geographies, operated by 50 people.
After outsourcing to HPE, its equipment
savings translated to approximately $2.8
million USD.
By shortening the payment cycle and eliminating baseline inventory investment, outsourcing
to a total-solution service provider—with the right business model—can actually enhance your
economic picture.
A “pay-as-you-go” model—that collapses the cash cycle from customer order to payment for
product production—can be the solution. This moves you to an operating cash model, where
revenue from product sales covers production and delivery costs.
No up-front materials investment is required to produce products. Costs are recovered when
the product is shipped to your customer. Products are built as required, when orders are
received from your ERP system. The invoice reaches you only on confirmation that the product
has been shipped successfully to your customers. So, you see no liability for any product built
until it is shipped.
The benefits of this model are immediate, and have a positive impact on your company’s
cash flow and overall financial position. The reduced cash cycle takes effect as soon as the
outsourcing model is implemented.
This model also shifts the burden of maintaining inventory to the outsourcer. You are no
longer required to maintain a baseline level of component material. With zero backlog, justin-time systems, and a flexible inventory ownership policy, you can minimize the financial loss
associated with excess or obsolete materials.
Business white paper
Page 3
Myth #3
In-house manufacturing gives you more control over production so you can meet
shipment requirements at all times.
With this client, HPE proactively provided
feedback on ways to change courseware
that not only enhanced design and
manufacture, but also resulted in
cost reductions.
Reality: Partnering with a total-solution service provider can help your company meet
your customers’ needs more effectively.
It’s commonly perceived that in-house manufacturing helps companies control production
levels, which in turn enables them to better meet demand and ship products on time.
Theoretically, in-house personnel can anticipate the amount of product needed at critical times
and respond by upping production on-a-moment’s notice to meet expanded requirements.
In fact, companies with in-house manufacturing operations fail to meet shipment requirements
more often than they like. Staff shortages, human errors, equipment failures, communications
breakdown, low inventory levels—can result in a breakdown of in-house systems.
Outsourcing to a service provider that has a proven track record of on-time delivery and scaling
production with changing requirements, by contrast, can help your company ensure your
customers’ needs are met on time, every time.
Business white paper
Page 4
Myth #4
Outsourcing diminishes the total customer experience for purchasers of your product
because you lose direct contact with them during the fulfillment process.
Reality: An experienced service provider enhances customer service levels. For some
companies, letting a third party manage the fulfillment process—in essence, coming between
them and the customer—is the most difficult aspect of outsourcing decision-making.
The financial justification may be clear, but they fear service levels will decline, leading
to unhappy customers.
For quality products, customer satisfaction hinges primarily on one question: “Was the correct
product shipped on time?” Partnering with an established service provider—who understands
this—eliminates the risk of alienating customers.
And while you may not have direct contact with the customer during the fulfillment process,
this doesn’t mean loss of control. Using a provider that gives you real-time, web-enabled
access to all manufacturing and distribution data improves order and delivery status flow,
and order acknowledgements. Because you are no longer tying up resources with
production and fulfillment operations, you are free to concentrate on your core competency—
product development.
“With HPE Software Publishing Services as our partner,
Rockwell Automation is a true global supplier. Our
customers in Europe and Canada now see the same short
order turnaround times as our U.S. domestic customers.”
– Bill Barnwell, Operations Director, Rockwell Automation, Inc.
Business white paper
Page 5
Myth #5
Working with an outside service provider makes it difficult to coordinate multicountry
releases for new or revised products.
Reality: A global service provider facilitates multicountry releases, taking the pressure off a
software company’s internal staff.
Coordinating a new product or revision release to existing products—when crossing
geographies—can be a daunting undertaking. Language barriers, customs issues, and other
problems that arise—when shipping from a single country—slow down deliveries and reduce
your company’s competitive advantage.
In addition, a global release can stretch internal resources beyond the breaking point. To
counter this, many companies stagger releases for various countries. This, however, delays
revenue receipts and can even result in lost customers. Partnering with a global service
provider eliminates these problems, cuts time-to-market, and reduces distribution costs.
The ability to get the latest products to customers and channel partners—at the same
time—regardless of location, gives companies a clear competitive edge. It also shortens order
turnaround times for customers in Europe and Asia, while assisting you in avoiding customs
issues that can arise from shipping from the United States to other countries.
Business white paper
Decrease costs, increase satisfaction
Outsourcing can dramatically reduce the money your company spends on in-house production
equipment, labor cost, and material spending. Reducing capital investments significantly
reduces inventory, facilities, and shipping expenses, and helps increase revenue and decrease
costs. And there’s also the benefit of improved cash flow, when using lean manufacturing.
For one client , we were able to reduce
the software update cycle from
weeks or months to days, and cut the
manufacturing and fulfillment process to
days—and sometimes even hours— on a
worldwide basis.
Take advantage of the benefits that outsourcing can deliver; choose the right partner—one
with experience, a record of success, rigorous processes, quality control, and the flexibility to
meet your specific needs. Your savings can be realized in several key ways:
•The combined purchasing demands of multiple organizations results in obtaining commodity
pricing and decreasing per-unit costs.
•A collapsed payment cycle enables you to operate your outsourced manufacturing and
distribution functions from your revenue stream.
•Strategically located manufacturing and distribution centers—in the most active and
profitable markets throughout Europe, Asia Pacific, and the U.S.—reduce tax and duty
payments and enable your products to reach your customers as quickly as possible.
•Reductions in the total cost of operations—through outsourcing—can immediately reflect on
your company’s bottom line.
Work with the best
HPE provides a total-solution approach, assuming responsibility for all or part of the process—
from supply chain management, to real-time order and inventory tracking, to online fulfillment
and reporting. Partnering with a large, established outsourcer like HPE lets you benefit from
economies of scale. In addition, we amortize fixed and variable costs over multiple clients, helping
maximize supply chain efficiencies—providing immediate bottom-line improvements for you.
Learn more at
hp.com/services/bps
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4AA5-4126ENW, November 2015, Rev. 1