management of outsourced operations-7
TRANSCRIPT
-
8/12/2019 Management of Outsourced Operations-7
1/21
Management of outsourcedoperationsOutsourcing Vs Insourcing
-
8/12/2019 Management of Outsourced Operations-7
2/21
Outsourcing Purchasing an item, process, or service
externally when the organization has thecapability to produce it internally is equivalent to"selling jobs"
Overriding factor in considering internal versus
external products/processes / services is TOTALCOST
-
8/12/2019 Management of Outsourced Operations-7
3/21
Decision usually arises due to New product development, Unsatisfactory supplier / distributor performance Periods of changing sales patterns
(increasing or decreasing) Expansion of geographic sales regions
-
8/12/2019 Management of Outsourced Operations-7
4/21
4
Decision Process
1. Assess
Technology andDemand Trends
2. Assess Strategic
Alignment and CoreCompetencies
3. Conduct Total CostAnalysis of
Insourcing/OutsourcingAlternatives
4. Consider the BigPicture and Reach
Decision
-
8/12/2019 Management of Outsourced Operations-7
5/21
Assessing Trends What is my relative position?
Cost Quality Delivery / Responsiveness Technology Cycle times
Is this considered a core/critical current or futurecompetency? If behind, can we catch-up / surpass?
-
8/12/2019 Management of Outsourced Operations-7
6/21
Strategy Alignment Through BusinessPlanning
6
Strategic Business Unit /Product
Manufacturing /Operations
Technology Procurement
-
8/12/2019 Management of Outsourced Operations-7
7/21
Factors Supporting Outsourcing Supplier has specialized know-how Cost considerations favor supplier Firm lacks ability to build item Small volume requirements Firm's capacity constraints Desire not to add workforce Uncertain volume requirements Routine item available from many sources
Building requires high capital startup costs
-
8/12/2019 Management of Outsourced Operations-7
8/21
Insourcing Advantages
Higher degree of control over inputs Increases visibility over the process Economies of scale and scope
Disadvantages Requires high volumes High investment Dedicated equipment has limited uses Problems with supply chain integration
-
8/12/2019 Management of Outsourced Operations-7
9/21
Factors Supporting Insourcing Favorable cost considerations Desire to integrate operations Use available capacity to absorb fixed overhead Control over production and quality Design secrecy required Lack of reliable suppliers Stable workforce w/ declining volumes Technical items related to core competence Strategic item or technology behind
-
8/12/2019 Management of Outsourced Operations-7
10/21
Costs - Insourcing Process Incremental fixed costs
Equipment investment Factory overhead Managerial costs Purchasing costs Inventory carrying costs Costs of capital & taxes Special personnel
-
8/12/2019 Management of Outsourced Operations-7
11/21
Make/Buy Studies Finding True In-house Costs is not Easy!
Costs of Overhead Costs of Quality Operational Costs Capital Costs
Be Careful - In-house managers can easily hidecosts! Traditional analysis only considers variable
costs
-
8/12/2019 Management of Outsourced Operations-7
12/21
Full Cost AnalysisINSOURCE OUTSOURCE
Variable Cost $ 5.00 ----------
Variable +Manufacturing Overhead $8.00 ----------
Variable +Manufacturing Overhead +Corporate Overhead $10.00 $7.50
-
8/12/2019 Management of Outsourced Operations-7
13/21
Full Cost Analysis Issues:
What costs stay and which go - validity? Opportunity for actual improvement Impact of other considerations (Quality, Delivery
Reliability, Technology, etc.)
What are the longer-term strategic implications?
-
8/12/2019 Management of Outsourced Operations-7
14/21
Make or Buy - Other Factors Availability of current capacity and projected
workload during life cycle of item Extremely tight quality specifications may favor in-house operations Stable and trained workforce
Need for expansion may make them unavailable Recruitment and training of an additional work force may
result in an unstable condition Tight labor markets Union contracts may present inflexible situations Conservative forecasts will benefit suppliers or result in
excessive idle time
-
8/12/2019 Management of Outsourced Operations-7
15/21
Make or Buy - Other Factors For specialized equipment, what is the projected
future need for such an investment?
Forecasted product demand - time and quantity Technological considerations Complex technical products Suppliers with specialized knowledge or patents Factory "focus" - what business are we in?
Supplier goodwill considerations Using suppliers only occasionally as buffers mayresult in loss of goodwill and long term damage
Avoiding proprietary data leaks Capital outlay and associated risks
-
8/12/2019 Management of Outsourced Operations-7
16/21
Questions to Consider - InsourcingCosts What effect will insourcing a purchased
product/process/service have on the coststructure of this and other processes carried outin-house?
-
8/12/2019 Management of Outsourced Operations-7
17/21
Assignment: Warehouse Decision Manufacturer is considering performing
warehouse function internally Has recently reduced its manufacturing
workforce by thirty full-time hourly employeesand three managers
17
-
8/12/2019 Management of Outsourced Operations-7
18/21
Make or Buy:Warehouse Decision
Warehouse sales reps contact a publicwarehouse electronically, where warehousepersonnel pick and pack the order and
arrange the shipment Initial benefit = decrease in per unit
warehouse charges from $2.90 to $2.36 in aprivate warehouse
18
19
-
8/12/2019 Management of Outsourced Operations-7
19/21
Make or Buy:Warehouse Decision
Reduced labor force (jobs for laid-off workers,with additional cost training)
Sales personnel could have offices in thewarehouse
Greater control over operations
Assume warehouse operates for ten years
19
20
-
8/12/2019 Management of Outsourced Operations-7
20/21
Cost of Private Warehouse Annual chargesBuilding and equipment $25,000
(depreciation of initial investment)Employee training 10,000Overhead expenses 50,000Management expenses 70,000
$155,000 Annual capacity 180,000 units
Cost per unit Annual charges $ .86($155,000 / 180,000 units)Variable costs $1.00Direct labor costs $ .50
$2.36 / unit
20
21
-
8/12/2019 Management of Outsourced Operations-7
21/21
Warehouse Decision List all of the advantages of insourcing the
warehouse List all of the advantages of outsourcing the
warehouse What would be your final decision, taking into
consideration of these considerations?
21