outsourcing hussain

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2008 Prentice Hall, Inc. S11 1

OutlineOutline

What is Outsourcing?What is Outsourcing?

Types of OutsourcingTypes of Outsourcing

Strategic Planning and CoreStrategic Planning and CoreCompetenciesCompetencies

The Theory of ComparativeThe Theory of Comparative

AdvantageAdvantage Outsourcing Trends and PoliticalOutsourcing Trends and Political

RepercussionsRepercussions


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IntroductionIntroduction

SourcingSourcing --all of firms activities used toall of firms activities used tomanage external resources.manage external resources.

Strategic sourcingStrategic sourcing--managing the firmsmanaging the firmsexternal resources to support firms long termexternal resources to support firms long term

goals.goals.

Drivers of Strategic SourcingDrivers of Strategic Sourcing Reduce costs & delivery cycle timesReduce costs & delivery cycle times

Improve quality & longImprove quality & long--term financial performanceterm financial performance

Increase number of global competitorsIncrease number of global competitors

Increase customer focusIncrease customer focus

Reduce high costs of globalization & materials,Reduce high costs of globalization & materials,

Deliver more innovative products more frequentlyDeliver more innovative products more frequently

& cheaply than competitors& cheaply than competitors


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Outsourcing ProgramsOutsourcing Programs

(Cont.)(Cont.)InsourcingInsourcing ((backsourcingbacksourcing)) --reverting to inreverting to in--house production whenhouse production whenquality, delivery, and services do not meetquality, delivery, and services do not meetexpectationsexpectations

CoCo--sourcing (selective sourcing)sourcing (selective sourcing)--the sharing of a process or functionthe sharing of a process or functionbetween internal staff and an externalbetween internal staff and an external

provider & provides flexibility to decideprovider & provides flexibility to decidewhat areas to outsource, when, and forwhat areas to outsource, when, and forhow long.how long.


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Developing SuccessfulDeveloping Successful

Sourcing StrategiesSourcing StrategiesSuccessful Sourcing StrategiesSuccessful Sourcing Strategies areare

different for functional products & fordifferent for functional products & for

innovative products.innovative products.

Functional ProductsFunctional Products --MRO items & otherMRO items & othercommonly low profit margins with relativelycommonly low profit margins with relativelystable demands & high levels of competition.stable demands & high levels of competition.

Innovative ProductsInnovative Products --characterized by shortcharacterized by shortproduct life cycles, volatile demand, high profitproduct life cycles, volatile demand, high profit

margins, & relatively less competition.margins, & relatively less competition.


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Developing SuccessfulDeveloping SuccessfulSourcing Strategies (Cont.)Sourcing Strategies (Cont.)

Framework for supply chainFramework for supply chainstrategy development (Fig. 4.1):strategy development (Fig. 4.1):

Step 1Step 1 -- The firms suppliers are classified asThe firms suppliers are classified asbelonging either to the innovative orbelonging either to the innovative or

functional category.functional category.Step 2Step 2 -- The goals & strategies of theThe goals & strategies of theinbound portion of the supply chain areinbound portion of the supply chain aredeveloped.developed.

Step3Step

3-- Supply chain capabilities areSupply chain capabilities areevaluated & compared to requiredevaluated & compared to required

performance.performance.

Step 4Step 4 -- Set goals for improving capabilities.Set goals for improving capabilities.

Step 5Step 5 --Implement work plan.Implement work plan.

Ste 6 Ste 6 - - Monitor ro ress & ad ust the workMonitor ro ress & ad ust the work


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OutlineOutline ContinuedContinued

Risks in OutsourcingRisks in Outsourcing

Methodologies for OutsourcingMethodologies for Outsourcing Evaluating Multiple Criteria withEvaluating Multiple Criteria with

Factor RatingFactor Rating

BreakBreak--even Analysiseven Analysis


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OutlineOutline ContinuedContinued

Advantages and DisadvantagesAdvantages and Disadvantagesof Outsourcingof Outsourcing

Advantages of OutsourcingAdvantages of Outsourcing

Disadvantages of OutsourcingDisadvantages of Outsourcing

Audits and Metrics to EvaluateAudits and Metrics to Evaluate

Outsourcing PerformanceOutsourcing Performance

EthicalIssues in OutsourcingEthicalIssues in Outsourcing


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OutsourcingOutsourcing

Outsourcing can replace entireOutsourcing can replace entirepurchasing, information systems,purchasing, information systems,

marketing, finance, and operationsmarketing, finance, and operationsdepartmentdepartment

Applicable to firms throughout theApplicable to firms throughout theworldworld

Making the right decision may beMaking the right decision may bethe difference between successthe difference between successand failureand failure


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Procuring from external suppliersProcuring from external suppliersservice or products the firms used toservice or products the firms used to

provide for itselfprovide for itself

Offshoring is moving processes to aOffshoring is moving processes to aforeign country but retaining controlforeign country but retaining control

Firms that outsource are called clients,Firms that outsource are called clients,

the actual work is done by thethe actual work is done by theoutsourcing provideroutsourcing provider

Extension of the longExtension of the long--standing practicestanding practiceof subcontractingof subcontracting


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Outsourcing has become a majorOutsourcing has become a majorstrategy as firms move towardstrategy as firms move towardspecializationspecialization

Increasing expertiseIncreasing expertise

Reduced cost of reliable transportationReduced cost of reliable transportation

Rapid deployment ofRapid deployment oftelecommunicationstelecommunicationsand computersand computers

the Internetthe Internet


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Examples of OutsourcingExamples of Outsourcing

Call centers in French AngolaCall centers in French Angola

Legal and finance service in theLegal and finance service in the

PhilippinesPhilippines EDS handling informationEDS handling information

technology for Nexteltechnology for Nextel

IBM providing travel andIBM providing travel and

payroll for P&Gpayroll for P&G

Solectron producingSolectron producingIBM computersIBM computers


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Types of OutsourcingTypes of Outsourcing

Common processes outsourced areCommon processes outsourced are

PurchasingPurchasing

LogisticsLogistics

R&DR&D

OperationsOperations

Service managementService management

Human resourcesHuman resources

Finance/accountingFinance/accounting

Customer relationsCustomer relations

Sales/marketingSales/marketing

TrainingTraining

Legal processesLegal processes

Outsourcing implies a legally bindingOutsourcing implies a legally bindingcontractcontract


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Strategic Planning andStrategic Planning and

Core CompetenciesCore Competencies Strategic planning defines the missionStrategic planning defines the mission

and goals for the organizationand goals for the organization

From this the organization determinesFrom this the organization determinesthe role of each business activitythe role of each business activity

Core competencies are things theCore competencies are things theorganization does better than itsorganization does better than itscompetitioncompetition

NonNon--core activities are good candidatescore activities are good candidatesfor outsourcingfor outsourcing


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Outsourcing can be riskyOutsourcing can be risky

As many as half of all outsourcingAs many as half of all outsourcing

agreements fail because of inappropriateagreements fail because of inappropriateplanning and analysisplanning and analysis

Erratic power grids, governmentErratic power grids, governmentdifficulties, inexperienced managers, anddifficulties, inexperienced managers, and

unmotivated labor can create problemsunmotivated labor can create problems Failure to achieve unrealistic goalsFailure to achieve unrealistic goals

sometimes create the impression ofsometimes create the impression offailurefailure


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Table S11.1Table S11.1

OutsourcingOutsourcing Examples of Examples ofProcessProcess Possible RisksPossible Risks

Identify nonIdentify non--corecorecompetenciescompetencies

Can be incorrectly identified as aCan be incorrectly identified as anonnon--core competencycore competency

Identify nonIdentify non--corecoreactivities that should beactivities that should beoutsourcedoutsourced

Just because the activity is not aJust because the activity is not acore competence for your firmcore competence for your firmdoes not mean an outsourcedoes not mean an outsourceprovider is more competent andprovider is more competent andefficientefficient

Identify impact onIdentify impact onexisting facilities,existing facilities,capacity, and logisticscapacity, and logistics

May fail to understand theMay fail to understand thechange in resources and talentschange in resources and talentsneeded internallyneeded internally


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Monitor and controlMonitor and controlcurrent outsourcingcurrent outsourcing

programprogram

May be unable to control productMay be unable to control productdevelopment, schedules, anddevelopment, schedules, and

qualityquality

Evaluate and giveEvaluate and givefeedback to outsourcefeedback to outsourceproviderprovider

May have nonMay have non--responsiveresponsiveprovider (i.e., one that ignoresprovider (i.e., one that ignoresfeedback)feedback)

Evaluate internationalEvaluate internationalpolitical and currencypolitical and currencyrisksrisks

Countys currency may beCountys currency may beunstable, a country may beunstable, a country may bepolitically unstable, or culturalpolitically unstable, or culturaland language differences mayand language differences mayinhibit successful operationsinhibit successful operations


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Evaluate coordinationEvaluate coordinationneeded for shipping andneeded for shipping and

distributiondistribution

May not understand the timingMay not understand the timingnecessary to manage flows tonecessary to manage flows to

different facilities and marketsdifferent facilities and markets


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EmploymentEmployment

Changes in facilities and processesChanges in facilities and processesneeded to receive components in aneeded to receive components in adifferent state of assemblydifferent state of assembly

Vastly expanded logistics issuesVastly expanded logistics issues

Outsourcing brings other issues:Outsourcing brings other issues:

outsourcing hussain

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