Why?

DO IT YOURSELF?

July 20, 1992|By Ross Hetrick | Ross Hetrick,Staff Writer

If you want something done right, pay someone else to do it.

That may be the motto of the growing "outsourcing" industry, which provides American businesses with a variety of services that they traditionally had performed themselves.

The industry, which began with such activities as running cafeterias and providing security, has grown increasingly sophisticated. Today, outsourcing companies handle services ranging from computer operation to payroll management.

Their sales pitch: We can do the job cheaper and better, because of economies of scale and because we are specialists.

And what company isn't looking to cut costs these days?

They also claim that companies benefit from the competition among outsourcing suppliers. And day-to-day operations handled by outsourcing companies are not hampered by office politics.

"People find they have better control if they don't have the department downstairs," said John T. Menzies 3rd, chairman of the Terminal Corp., a Baltimore-based company that operates 1 million square feet of warehouse space in the Baltimore-Washington region.

Traditionally, Terminal had provided 30-day warehousing for companies with temporary storage needs. But these days, more and more companies are deciding against building and staffing their own warehouses. Instead, they are signing long-term contracts with companies such as Terminal.

Ten years ago, Terminal had no long-term agreements; now they account for about a third of the company's business.

"There was much more attention in the last decade to buying more services outside," Mr. Menzies said. "I see much more emphasis on outsourcing."

And many Baltimore-area companies, like Terminal, are cashing in on the trend.

In little more than a decade, the work force at Miracle Services Inc., a Hanover-based janitorial operation, has grown from a few workers to more than 625. Today, the company takes care of hundreds of buildings.

Bob Hirt, marketing manager for Miracle Services, said the company has grown as government agencies and companies examined their maintenance costs. "They are rethinking their in-house services because of cost."

The cleaning business has also become more specialized in recent years because of concerns about how cleaning methods will affect airtight buildings, Mr. Hirt said.

Yellow Transportation Co., Baltimore's largest taxi company, is another company that has profited from the outsourcing business.

Back in 1976, all of Yellow's business was in taxicabs. But now about 66 percent of the business in other services such as bus, van and shuttle services for companies and government agencies, says company President Mark L. Joseph.

"We are much more responsive," Mr. Joseph said about Yellow's corporate shuttle services. Besides being able to set up operations quickly, companies such as Yellow allow their customers to experiment with a service before making a commitment.

Even if a company does not buy services, simply shopping around can be beneficial, Mr. Joseph said. "At least there is a comparison."

One large company that has been comparing in-house operations to outside suppliers for years is Du Pont Co., the chemical company based in Wilmington, Del.

For the last 15 years, Du Pont has been engaged in a process of "benchmarking and continuous improvement," according to John W. Himes, vice president for human resources. "This leads to the question, 'Why do I do this work myself?' "

Traditionally, the company was a do-it-yourself operation -- from running research labs to cutting grass around its plants. But this began to change more than a dozen years ago when the company started contracting for its cafeteria and maintenance operations.

Later, Du Pont dropped its self-insurance plan and hired health-care companies to provide medical coverage for its employees. And then it turned to computer firms for training, though it still runs its own computer operation.

Companies gain a great deal of flexibility from outsourcing, but that often comes at the expense of workers, according to John T. Garrity, lecturer in the School of Business Administration at Georgetown University.

"You pay for [services] as you need them," Mr. Garrity said. This can be particularly beneficial to companies that have seasonal businesses.

But often these workers are paid less and receive fewer benefits. And companies contracting for the services often have very little loyalty to the workers.

"You don't train them to the same extent as if they were your own employees," Mr. Garrity said.

One of the largest outsourcing suppliers in the country is Philadelphia-based ARA Services Inc., which has 125,000 workers nationwide.

In Maryland, the company's 3,000 workers can be found in cafeterias, maintenance departments, company day-care centers and the emergency rooms of area hospitals.

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