Quản trị kinh doanh - Chapter 9: Strategic outsourcing

1Chapter 9:Strategic OutsourcingPurchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reservedOutsourcingComplete transfer of a business process to an independent external organizationOnce the process is outsourced, assets are no longer maintainedPeople, facilitiesEquipment, technology A departure from subcontracting, joint venturing, and contract manufacturing2Current Outsourcing TrendsPopularity of outsourcingBy 2005, global business process outsourcing surpassed the US$6 trillion25~34 % of a typical executive’s budget is outsourcedComposition of outsourcing contracts 76% of announced outsourcing contracts represented new deals24% represent a combination of contract extensions, expansions, or renewals3Business Process OutsourcingExpected strategic benefits:Cost minimizationReduce and control operating costsTurn fixed costs into variable costsRefocus on core competenciesRefocus scarce resourcesAcquire external capabilities4Realizing Outsourcing Benefits20~25% of all outsourcing relationships fail within two years Nearly half fail within five yearsConditions needed to realize expected outsourcing benefits:Extensive strategic assessment of the caseTrue commitment to a cooperative relationshipTraining and recruitment within outsourcing organizations focused on relationship building and management5Hidden Costs of OutsourcingQuality costsSupplier vendor relationship managementInternal coordinationImplementation of external sourcing modelGovernment and politics-related expensesSupply chain risk managementMiscellaneous financial considerations61. Quality CostsThe costs associated with ensuring qualityCategories of quality costs:Preventative costi.e., designing quality into products and processesAppraisal coste.g., inspections, audits, monitoring mechanismsInternal failure coste.g., scrap, rework, internal downtimeExternal failure costi.e., failure perceived by the external customer72. Supplier Vendor Relationship ManagementThe high cost of relationship building and coordinationExternal sourcing of strategic products and servicesCosts of relationship At least 3~10% of the annual contract valueHigh labor and travel expenses of purchasing personnelIT infrastructure and management costsSupplier development programs costs83. Internal CoordinationThe overhead expenses incurred solely due to the decision to internally source a product or servicePayroll, benefits managementUtility, ITThus, external sourcing is expected to eliminate this cost.However, external sourcing does not equate to significant reduction in internal coordination costs.In many cases, outsourcing is unable to free up the anticipated level of internal resources.94. Implementation of External Sourcing ModelActivities associated with switching sources:Supplier search, evaluation, and contractingThe transfer of physical assetsDomestic and international travel during startupTraining of the new source105. Product Service Design and DevelopmentThe intertwined relationship between:Product or service architecture Cost of coordinationTightly coupled or integrated product designs are associated with: Tacit and less easily codified knowledgeHigher knowledge sharing requirementsHigher coordination costTherefore, it may not be appropriate for external sourcing.116. Government and Politics- Related ExpensesCosts involved with ensuring compliance with governmental laws, regulations, and even local business customsIncludes:Legal expenses incurred to learn about a foreign location’s laws and regulationsLobbying efforts and travelTaxation, tariffs, quota systemsLocal content obligations127. Supply Chain Risk ManagementOutsourcing as one of the key factors driving increased levels of supply chain risk4 iterative phases of risk management:Risk assessmentRisk mitigationRisk monitoringContingency planning138. Miscellaneous Financial ConsiderationsCost improvement from the learning curve associated with cumulative volumeExternal suppliers can aggregate the demands of their multiple customersCost improvement by outsourcing firm is determined by: Competitive conditions in the supply marketPower structuresThreat of opportunistic behavior by the external supplier14Evaluating the Business CaseStrategic evaluationUnderstand the strategic value of the activity or systemFinancial evaluationShort- and long-term financial evaluationEvaluation of conditional factors 15Questions?16