power of outsourcing

8/14/2019 Power of Outsourcing

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ower of Outsourcingower of Outsourcingn Supply Chainn Supply ChainManagementanagement

Group 3


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Outsourcing often refers to the process of subcontracting to a

third-party.It can be defined as the contracting out of a companys non-

core, non-revenue-producing activities to specialists.

Sourcing your operations to a qualified external entity through

a contract, therebyImprove efficiency in core processes

Improve shareholder Value

Increase profits


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Administrative

Administrative

Tactical Tactical

Strategic

Strategic

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%0

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Without Outsourcing With Outsourcing

Time spent by companies on various activitiesin outsourcing and non outsourcing activities


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Reasons of outsourcing

Cost savings

Focus on Core Business

Improve quality

Knowledge

Operational expertise

Access to talent

Acquire better management


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Contd Assist a fast growth situation Reduce time to market

Avoid labour problems

Avoid major investments

Tax Benefit

Flexibility

Enhance credibility


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Risks in outsourcingIncrease in bargaining power of the outsourced party

Loss of control

Losing technical know how

Exchange risks

Global competition

Market risks


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Outsourcing Process

Understanding company goals and objectives

Strategic Vision and Plan

Selecting the right vendor

Management of the relationships


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Contd

Properly structured contract

Open communication

Senior executive support

Use of outside expertise


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Fear of outsourcing in SCMFear of losing control

Lack of confidence

Lack of outsourcing education

Management philosophy and tradition


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SEVEN MYTHS OF SUPPLY

CHAIN OUTSOURCINGMyth 1 : My outsourced partners are all supply chain

experts.

Myth 2 : My partners have state of the art informationtechnology infrastructures.

Myth 3 : By outsourcing production and fulfillment, I willnot have to worry about execution.


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contdMyth 4: My outsourced partners will provide expert project

management.

Myth 5: Outsourcing automatically gives me a time-to-

market advantage.Myth 6: Outsourcing is the key to making my operations

highly scalable.

Myth 7: Fulfillment is easier to outsource than

manufacturing.


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OUTSOURCING FIASCOS

The Changeover

How to transition business from inside providers to outsidesuppliers on a seamless basis.

How does company continue to effectively manage thefunctions from a long-range strategic point of view.

Need for effective understanding of core competenciesDesirable to have a strategy that promotes a core competency

inside the organization while promoting a parallelcompetency with an outside organization.


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contdNeed to manage

Need to make sure the suppliers core competency is beingdeveloped over the period of the contract.

Suppliers core competency becomes greater concern over thetime.

ComplexityGrowing complexity in outsourcing strategies.

New strategies development encompass sizeable teams of key

people on technology & commercial as well asmanufacturing side of business working together.


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contdWhats at the core

Necessary to define organizations core competency.

Decisions driven by longer range goals of better capitalutilization rather than tactics such as adding capacity.

MeasurementNew Metrics to measure effectiveness of outsourcing.

Sourcing decisions going to be major contributors tocorporate competencies.

Measures vary from tactical, to transitional, to strategic.


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A Case Mc Donalds

McDonald's was started as a drive-inrestaurant by two brothers, Richard andMaurice in 1937 in USA.

By mid-1950s, the restaurant's revenues hadreached $350000.

As word of their success spread, franchiseesstarted showing interest.

However, the franchising system failedbecause the McDonald brothers observedvery transparent business practices.


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Contd...

The franchisees also did not maintain the samestandards of cleanliness, customer serviceand product uniformity.

Ray Kroc (Kroc), distributor for milkshakesigned the joint venture with Mc Donalds.

In 1996, when McDonald's entered India it waslooking for a distribution agent who would actas a hub for all its vendors.


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Contd

Mumbai-based Radhakrishna Foodland PrivateLimited (RFPL) was chosen for the job .

RFPL stored the products in controlledconditions in Mumbai and New Delhi andsupplied them to McDonald's outlets on adaily basis.


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Outsourcing ProcessMcDonald's success in India had been built on

four pillars:-

Limited menu

Fresh food

Fast service

Affordable price

Outsourcing nine different ingredients used inmaking a burger from over 35 suppliers

spread all over India


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Cheese Dynamix Dairy Industries Ltd., Pune

Dehydrated onions Jain Foods, Jalgaon

Iceberg lettuce Trikaya Agriculture, Pune

Chicken patty Vista Foods, Taloja

Veg. Patty, Veg. nuggets, Pineapple/Apple pie Kitran Foods, Taloja

Chicken (dressed) Riverdale, Talegaon

Buns Cremica Industries, Phillaur

Eggless mayonnaise Quaker Cremica Pvt. Ltd., Phillaur

Sesame seeds Ghaziabad

Iceberg lettuce Meena Agritech, DelhiFish fillet patties Amalgam Foods Ltd., Kochi.

Iceberg lettuce Ooty Farms & Orchards, Ooty

Vegetables for the patties Finns Frozen Foods & Jain Foods (Nasik,Jalgaon)

Mutton and mutton patties Al Kabeer, Hyderabad


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Process

It went into contract farming.

It trained the local farmers to produce potatoes

to specifications .

It has centralized distribution system.

RFPL build a cold storage and packagingfacilities.

RFPL also handled McDonald's inventory

management.


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Contd

It ensures future requirements andcontingencies and plan for optimumutilization.

AFL Logistics Ltd (ALL), a joint venture betweenand Coughlin of the US

Coughlin ensured that quality, temperatureand packaging requirements were met. At thesame time, unused capacity in the vehicleswas used to transport goods from othervendors.


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Contd

This helped Coughlin deliver the lowest costwith the highest quality

Restaurants were not supposed to stock morethan three days of inventory.

McDonald's standards covered the entiredelivery schedules.


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Contd.

For in-city delivery, the truck was monitoredfrom the time it left the distribution centre tillthe time it reached the restaurant.

The time taken in offloading was noted too.


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Contd.

The products were transported from thesuppliers' end to the distribution centre.

There were also data logs to track themovement of each batch.

This meant that in the case of a complaint from

a restaurant, the batch could be identified,isolated, and dumped.


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Key LearningsCore competencies are the fundamental strength of the

company, need to be identified & cultivated in order tobuild new products & market opportunities.

Allows management to focus on strategic business areas.

Associated risks-loss of internal competence, loss offeedback mechanism, reduced ability to control & loss ofcross-functional competence networks.


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Contd

Hidden costs effects on infrastructure, values.

Balance between short-term efficiency & long termlearning.

Outsourcing limits to be defined that dont undermine

the companys long term capacity for developmentand renewal.


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hank You

power of outsourcing

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