Heizer om10 ch11_s-outsourching

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Heizer om10 ch11_s-outsourching

  1. 1. 10/16/2010 Outsourcing as a Supply S11 Chain Strategy What is Outsourcing? Outline Strategic Planning and Core Competencies The Theory of Comparative PowerPoint presentation to accompany Heizer and Render Advantage Operations Management, 10e Principles of Operations Management, 8e Risks in Outsourcing PowerPoint slides by Jeff Heyl Evaluating Outsourcing Risk with Factor Rating© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 1 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 2 Outline – Continued Learning Objectives When you complete this supplement Advantages and Disadvantages you should be able to: of Outsourcing 1. Explain how core competencies Advantages of Outsourcing g relate to outsourcing Disadvantages of Outsourcing 2. Describe the risks of outsourcing Audits and Metrics to Evaluate 3. Use factor rating to evaluate both Performance country and provider outsourcers Ethical Issues in Outsourcing 4. List the advantages and disadvantages of outsourcing© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 3 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 4 Supply- Supply-Chain Management Outsourcing Outsourcing can replace entire The objective is to build a chain of purchasing, information systems, suppliers that focuses on marketing, finance, and operations maximizing value to the ultimate g department customer Applicable to firms throughout the world Making the right decision may be the difference between success and failure© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 5 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 6 1
  2. 2. 10/16/2010 What is Outsourcing? What is Outsourcing? Procuring from external suppliers Outsourcing has become a major service or products that are normally strategy as firms move toward part of an organization specialization Offshoring is moving processes to a 1. 1 Increasing expertise foreign country but retaining control 2. Reduced cost of reliable Extension of the long-standing practice transportation of subcontracting 3. Rapid deployment of telecommunications and computers – the Internet© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 7 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 8 Examples of Outsourcing Types of Outsourcing Call centers for Brazil in Angola Common processes outsourced are Legal and finance service in the Purchasing Finance/accounting Philippines Logistics Customer relations IBM providing travel and R&D Sales/marketing payroll for P&G Operations Training ADP processing payroll Service management Legal processes for thousands of firms Human resources Blue Cross sending patients to India Outsourcing implies a legally binding contract© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 9 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 10 Desirable Outsourcing Strategic Planning and Destinations Core Competencies Rank Country Score Rank Country Score Strategic planning defines the mission 1 India 6.9 46 Ukraine 4.9 and goals for the organization 2 China 6.6 47 France 4.9 From this the organization determines 3 Malaysia 6.1 48 Turkey 4.8 the role of each business activity 4 Thailand 6.0 49 Portugal 4.8 Core competencies are things the 5 Brazil 5.9 50 Ireland 4.2 organization does better than its Table S11.1 competition Non-core activities are good candidates for outsourcing© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 11 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 12 2
  3. 3. 10/16/2010 Strategic Planning and Theory of Comparative Core Competencies Advantage Sony, Post-sales If an external outsourcing provider can service An Outsourcing Company Financial Logistics perform activities more productively functions g than the client firm, the outsourcing Outsourcers could Parts manufacture Core Competency Distribution provider should do the work Best in the world at provide electromechanical miniaturization Marketing design Accounting Employee benefit Maintenance management Real estate management Figure S11.1© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 13 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 14 Outsourcing Trends and Outsourcing Trends and Political Repercussions Political Repercussions According to a survey of 53 major Outsourcing includes specific business corporations, the most important functions (computer help desks) and reasons for outsourcing are: entire departments (accounting, marketing, finance, etc.) marketing finance etc ) Cost savings 77% 35% of businesses said they would Gaining outside expertise 70% continue or expand outsourcing Improving services 61% 40% said they would continue Focusing on core competencies 59% outsourcing but revise their arrangements Gaining access to technology 56% Some said they would reduce outsourcing© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 15 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 16 Outsourcing Trends and Outsourcing Trends and Political Repercussions Political Repercussions Political backlash can occur when jobs Outsourcing includes specific business are outsourced to foreign countries functions (computer help desks) and entire departments (accounting, In the U.S. state and federal laws have been marketing, finance, etc.) marketing finance etc ) enacted to limit or prevent outsourcing p g activities 35% of businesses said they would Recent data suggests more foreigners continue or expand outsourcing outsource jobs to the U.S. than 40% said they would continue American companies outsource offshore outsourcing but revise their arrangements Backsourcing describes the process of Some said they would reduce outsourcing returning work to the original firm when outsourcing fails© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 17 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 18 3
  4. 4. 10/16/2010 Risks of Outsourcing Risks of Outsourcing Outsourcing can be risky Outsourcing Examples of Process Possible Risks As many as half of all outsourcing Identify non-core Can be incorrectly identified as a agreements fail because of inappropriate competencies non-core competency planning and analysis Identify non-core Just because the activity is not a activities that should be ti iti th t h ld b core competence f your firm t for fi Erratic power grids, government outsourced does not mean an outsource difficulties, inexperienced managers, and provider is more competent and efficient unmotivated labor can create problems Identify impact on May fail to understand the Failure to achieve unrealistic goals existing facilities, change in resources and talents sometimes creates the impression of capacity, and logistics needed internally failure Table S11.2© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 19 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 20 Risks of Outsourcing Risks of Outsourcing Outsourcing Examples of Outsourcing Examples of Process Possible Risks Process Possible Risks Establish goals and Goals can be set so high that Monitor and control May be unable to control product draft outsourcing failure is certain current outsourcing development, schedules, and agreement program quality p specifications Evaluate and give May have non-responsive Identify and select Can select the wrong outsource feedback to outsource provider (i.e., one that ignores outsource provider provider provider feedback) Negotiate goals and Can misinterpret measures and Evaluate international County’s currency may be measures of goals, how they are measured, political and currency unstable, a country may be outsourcing and what they mean risks politically unstable, or cultural performance and language differences may inhibit successful operations Table S11.2 Table S11.2© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 21 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 22 Risks of Outsourcing Risks of Outsourcing Outsourcing Examples of Process Possible Risks Outsourcing brings other issues: Evaluate coordination May not understand the timing needed for shipping and necessary to manage flows to Employment distribution different facilities and markets Changes in facilities and processes needed to receive components in a different state of assembly Vastly expanded logistics issues Table S11.2© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 23 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 24 4
  5. 5. 10/16/2010 Evaluating Outsourcing Rating International Risk Factors Factor rating method Nine factors rated 0-3, 0 is no risk, 3 is high risk Risk Factor England Mexico Spain Canada Country risk Economic: Labor cost/ laws 1 0 2 1 problems Economic: Capital availability 0 2 1 0 Provider P id Economic: Infrastructure E i I f t t 0 2 2 0 Culture: Language 0 0 0 0 selection Culture: Social norms 2 0 1 2 problems Migration: Uncontrolled 0 2 0 0 Politics: Ideology 2 0 1 2 Politics: Instability 0 1 2 2 Politics: Legalities 3 0 2 3 Total risk rating scores 8 7 11 10 Table S11.2© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 25 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 26 Rating Outsourcing Providers Advantages of Outsourcing Seven factors rated 1-5 and an importance weight Outsourcing Providers Cost savings Factor Importance BIM S.P.C. Telco (criterion) Weight (U.S.) (India) (Israel) Gaining outside experience 1. Can reduce operating costs .2 3 3 5 2. Can reduce capital investment .2 4 3 3 Improving operations and service 3. Skilled personnel .2 5 4 3 4. Can improve quality .1 4 5 2 Focusing on core competencies 5. Can gain access to .1 5 3 5 technology not in company Gaining outside technologies 6. Can create additional capacity .1 4 2 4 7. Aligns with policy/ philosophy/culture .1 2 3 5 Other advantages Total and Averages 1.0 3.9 3.3 3.8 Table S11.3© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 27 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 28 Disadvantages of Outsourcing Audits and Metrics Outsourcing agreements must specify Increased transportation costs results and outcomes Loss of control Evaluation necessary to ensure satisfactory performance Creating future competition If the outsourced product or service is Negative impact on employees strategically important, the relationship Longer-term needs continuing communication, understanding, trust and performance impact Services may require imaginative metrics© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 29 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 30 5
  6. 6. 10/16/2010 Ethical Issues in Ethical Issues in Outsourcing Outsourcing Ethics Principle Outsourcing Linkage Ethics Principle Outsourcing Linkage Do no harm to indigenous Avoid outsourcing in a way Uphold basic human rights Don’t accept outsourcing that cultures that violates religious violates basic human rights holidays Pursue long term involvement Don’t use outsourcing as a long-term Don t Do no harm to the ecological Don’t use outsourcing to short-term arrangement to systems move pollution from one reduce costs; view it as a country to another long-term partnership Share knowledge Don’t think an outsourcing Uphold universal labor Don’t use outsourcing to take and technology agreement will prevent loss of standards advantage of cheap child technology, but use the labor that leads to employee inevitable sharing to build a abuse good relationship with outsourcing firms Table S11.5 Table S11.5© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 31 © 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 32 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.© 2011 Pearson Education, Inc. publishing as Prentice Hall S11 - 33 6

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