Outsourcing In Supply Chain Management Pdf – Sourcing is the process of evaluating and hiring individual businesses to provide goods and services to your business. Procurement is the process of buying these goods and services. Sourcing and purchasing have become a bigger part of supply managers’ duties in recent years, in part because the business has grown. Just as Ford employees have become efficient at performing specific tasks, so has the company.
Ford Motor Company no longer makes its own tires. It buys from tire manufacturers like Michelin and Goodyear. However, you may “own” your supply chain. The DeBeers diamond company has its own diamond mines, distributors, and stores. The problem is that it is very expensive to have many types of companies and it is difficult to run them all as well.
Outsourcing In Supply Chain Management Pdf
The company looks up and down the supply chain and outside to see which company can add the most value to the product at the lowest cost. If a company can find a company that can add more value than they can to a project, they will often outsource the project to that company. After all, why do it yourself when someone else can do it better or more expensively?
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Instead of owning their own trucks, ships, and planes, many companies outsource some of their shipping operations to carriers such as Express and FedEx. Some companies hire couriers to help them. You can think of freight forwarding as a travel agent. Their duties include negotiating transport rates and booking places for transport vehicles and warehouses. Freight forwarders also consolidate small shipments from shippers into larger shipments that can be delivered more economically. However, it does not have its own transport facilities or storage facilities.
Some companies go further and outsource their entire ordering and shipping department to a third-party company (3PL). FedEx Supply Chain Services and UPS Supply Chain Solutions (which are divisions of FedEx and UPS, respectively) are examples of 3PLs. A 3PL is a one-stop solution for companies that want to focus on other areas of their business. Companies that source and ship products internationally often hire 3PLs so they don’t have to deal with the hassle of shipping products overseas and handle import and export paperwork for themselves.
Since the 1990s, companies have begun to offer more services than transportation (McGrath, 2007). The goal is twofold: (1) reduce costs and (2) focus on what you do best. You may be surprised by the services of outsourcing companies. In fact, many “producers” of products no longer produce but export their products.
Many clothing companies, including Nike, design products, but do not manufacture them. Instead, they export their designs to companies in the country with lower labor costs. In addition, many pharmaceutical companies do not make their own drugs. They offer jobs to small drug developers, who in recent years have a better track record of developing best-selling drugs. Crest SpinBrush (toothbrush) was not developed by Procter & Gamble, the manufacturer of Crest. A small company called Church & Dwight Co. developed the SpinBrush technology, and P&G bought the rights to market and sell the product.
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Offshoring is called offshoring. Figure 9.2 “Percentage of Supply Chain Jobs Offshored in 2008” shows the percentage of supply chain jobs in three hundred global manufacturing and service organizations that are currently offshored and the percentage of those organizations expected to be offshored by 2010.[1]
Companies deal with turnover rates when outsourcing work. Loss of control—especially when it comes to product quality and safety—is one of them. Just ask Mattel. Since 2007, Mattel has been forced to recall tens of millions of toys that have been pulled from production due to lead contamination. But Mattel isn’t the only company in trouble. In a recent global survey, more than one in five companies supplying products said they had experienced “common” and “severe” quality problems.[2]
The US Consumer Product Safety Commission randomly inspects products, but there’s no way for commission staff to start testing them all. To protect their customers, many companies test their suppliers’ products themselves or contract with independent laboratories to do so. For example, if you sell products at Walmart, you should be prepared to send them to that lab, if Walmart asks you to do so. [3] The company also conducts on-site audits, or audits, of its suppliers. Some companies hire workers and suppliers on a permanent basis to ensure that the quality of the products produced is acceptable.
Loss of technology control is another outsourcing risk that companies face. Some countries are better at protecting patented technology and designs than others, and some supply partners are more reliable than others. How can you be sure that your supply chain partners won’t steal your technology? A few years ago, General Motors started cooperating with a Chinese company to produce a car called Spark for the Chinese market. But before GM could acquire the car factory, US cars were allegedly stolen, sold to other companies, and knock-offs were driving the streets of China. [4]
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Another aspect of outsourcing is related to social responsibility and environmentally sustainable companies that show how to manage the supply chain. Corporate social responsibility is the idea that companies should manage their business not only to make a profit but to improve the welfare of society. Both of these factors are becoming increasingly important to consumers. Environmental sustainability is the idea that companies should engage in business practices that have minimal impact on the environment in order to preserve it for future generations.
To show consumers that they are socially responsible, Starbucks and other companies have joined the Fair Trade movement. Members of the Fair Trade movement pay farmers and other third world producers higher prices for their products to keep them from living in poverty. The price consumers pay for products with a fair trade label is often higher, but one Harvard study showed that consumers expect and sales increase when the price increases (Chu, 2009).
Pressure for environmental sustainability is also impacting the supply chain, in part because stricter environmental laws in many jurisdictions require it. But the company sees a high level of production of “green” products and disposes of them in an ethical way. First, it improves the image of the company and makes it stand out among its competitors. Second, many consumers are willing to pay more for green products, even during recessions (Birchall, 2009). Walmart recently announced that it will require suppliers to measure the environmental costs of producing their products. A “Green” rating will be included on the product label (Rosen, 2009). Figure 9.3 “Why Companies are “Going Green” and Marketing Arguments” shows the reasons why companies are “going green” with their supply chain.
Outdoor clothing company Patagonia takes social responsibility and environmental responsibility very seriously. Patagonia strives to design, manufacture, produce and recycle its products in order to cause the least amount of damage. The company also monitors its service provider partners to ensure they treat their employees well.
Global Production, Outsourcing, And Logistics
Not being green can damage a company’s reputation. After Hewlett-Packard (HP) reneged on its promise to eliminate toxic materials from computers in 2009, Greenpeace activists painted the words “Dangerous Products” on the roof of the company’s headquarters in Palo Alto, California. At this point, a voicemail message appears
Actor William Shatner was introduced to all the calls in the building. “Please ask your boss [HP CEO Mark Hurd]” to make non-toxic computers like Apple, Shatner said in the message. An HP spokesperson said removing the toxic material would disrupt the company’s supply chain.
One of the problems with product launches is the time it takes for products to get to the United States and into the hands of consumers. The time it takes is a big issue because it affects how the company responds to customers. Sellers don’t like to wait for products. Waiting may mean customers will shop elsewhere if they don’t get what they want. As explained in Chapter 8 “Using Marketing Channels to Create Value for Customers”, for this reason, and more, some companies outsource operations closer to home.
Figure 9.4: Track the environmental and social impact of Patagonia’s various products throughout the supply chain – from design to distribution.
Layers To Logistics Services
When companies can’t solve supplier problems, they find other suppliers to work with or bring projects back in-house, a process called insourcing. Supply chain can help differentiate your company today. Credit card company Discover does not outsource customer service to overseas companies. Perhaps that helps explain why some research puts customer loyalty first.
Your customers should be the focus of everything
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