MGN 565 – Logistics and Supply Chain ManagementProfessor : Dr. Jean Marc DautreyTrade-Offs in Outsourcing Activities-28575285750Student Name : San San Su Student ID No. : 1712140001)Email: [email protected] Count: (1,400) words Dated: 23rd March 2019Outsourcing in a business is the practice of sharing certain functions of a job outside the company instead of doing themselves in house. CITATION ALE19 l 1033 (TWIN, 2019) In recent years, many businesses practice outsourcing in their business as a corporate strategy. The traditional explanations of outsourcing are To be able to concentrate on core competencies of the business.
The first, and perhaps the most popular, explanation of why firms engage in outsourcing is that they are concentrating on their core competencies. CITATION Luc13 l 1033 (Luca Giustiniano, Giulio Clarioni , 2013), and are thus concentrating their resources and capabilities on activities which have the greatest potential benefits in terms of improvements in competitive advantage.To achieve expertise and capabilities these are not available in-house business. The second explanation CITATION Rog11 l 1033 (Strange, 2011) draws upon the observation that all firms specialize in a limited range of activities because of the scarcity of resources, and outsourcing allows the firm to complement its own scarce resources with those owned by the external suppliers CITATION Mar05 l 1033 (Mark Gottfredson, Rudy Puryear, and Stephen Phillips, 2005).
Outsourcing thus allows the firm to address perceived scarcities in its own resources and capabilities.To gain the advantage of economies of scale b the external suppliers. The third explanation CITATION Rog11 l 1033 (Strange, 2011) goes further by suggesting that the external suppliers are better able, perhaps because they supply multiple clients or because they specialise in the production a variety of similar outputs, to provide the requisite goods and services with greater efficiency and at lower cost. This specialisation may also enable the suppliers to make product and/or process innovations CITATION Car92 l 1033 (Lynn E. Metcalf, Mary S. Alguire, 1992) that give rise to supply cost reductions that benefit the firm, though it has been noted that suppliers exhibit different levels of improvement capability CITATION March l 1033 (Peteraf, 1993, March). Nike is a footwear manufacturer. The company runs the business with its subcontractors for the manufacturing of its products although the company does not own any manufacturing facilities.CITATION Mic l 1033 (Michael T. Donaghu, Richard Barff, 1990) There is a sharp distinction between garment retailers and manufacturers CITATION Gar94 l 1033 (Gereffi, 1994), and most of the main garment retailers no longer have any significant manufacturing interests. In car manufacturing, many observers have predicted that today’s major firms will become vehicle brand owners with all parts manufacture and assembly undertaken by suppliers. CITATION Eco02 l 1033 (Economist, 2002) The Toyota are well-known for their systems of tiered suppliers. CITATION Tak00 l 1033 (Fujimoto, 2000)Trade-offs means a cost that is made to achieve a certain product or experience. It arises, where having more of one thing potentially that results in having less of another. Trade-offs can create the opportunity costs. Whenever we make a trade-off, our opportunity costs are the things that we do not choose as well as refused. Everything has opportunity costs in our surroundings. Opportunity cost is the cost of missing out on the next best alternative. In the other words, opportunity cost represents the benefits that could have been gained by taking a different decision. All businesses have to make choices and those choices have implications. In business, resources are usually scarce or limited. Decision are made under circumstances of uncertainty and taking one course of action or decision may affect business ability to take an alternative action. Opportunity cost measures the cost of a choice made in terms of the next best alternative foregone or sacrificed. Examples trade-offs in business are that If we decrease in market research, lower sales or decrease in new product launch success would be our potential trade-off.If we choose the investment which is in low risk, our trade-off would be low return. If we increase online advertising for our product, our trade-off would be to decrease the advertising on TV.If we choose increasing quality standard in order to build our reputation, our trade-off would be to increase in quality control and assurance costs. The analysis of trade-offs is necessary to find the balance between resource consumption and service provision. In conclusion, for being able to reduce the potential uncertainties and opportunity costs, when a business enters into the outsourcing arrangement with other service providers, the business should address the followings:Outsourcing agreement that details, among other things, the scope of the arrangement, the services to be supplied, the nature of the relationship between the business and the service provider, and the procedures those are governing the subcontracting of the services.Business continuity plan.Process for monitoring and oversight. Moreover, the management of the business is responsible for the developing outsourcing policies for the approval, implementing the policies and any associated procedures, periodically reviewing their effectiveness, and communicating information pertaining to significant outsourcing risks in a timely manner. The policies and procedures are supported to be includedOutsourcing risk philosophy that includes integration of outsourcing arrangements with overall business and strategic objectives, the importance and adequacy of internal expertise and management frameworks to oversee and manage the outsourced activities and the relationship with the outsource suppliers, and the business case for outsourcing a significant business activity. Materiality assessment for outsourcing arrangements. Outsourcing risk management programLimits regarding the level or authority to approve outsourcing arrangements of varying magnitudes, either individually or in aggregate. Factors that should be considered before outsourcing the impact of the outsourcing arrangement on the finances, reputation and operations of ATB Financial, or a significant business line, particularly if the service provider, or group of affiliated service providers, should fail to perform over a given period of time; the ability of ATB Financial to maintain appropriate internal controls and meet regulatory requirements, particularly if the service provider were to experience problems; the cost of the outsourcing arrangement; and the degree of difficulty and time required to find an alternative service provider or to bring the business activity in-house’.References BIBLIOGRAPHY Carl R. Frear, Lynn E. Metcalf, Mary S. Alguire. (1992, June). Offshore Sourcing: Its Nature and Scope. Retrieved from Research Gate: T. (2002). The Economist. The Economist , 71. Retrieved from The Economist .Fujimoto, T. (2000, April). The Evolution of a Manufacturing System at Toyota. Retrieved from Research Gate: G. (1994, January). The Organization of Buyer-Driven Global Commodity Chains: How U.S. Retailers Shape Overseas Production Networks. Retrieved from Research Gate: The Organization of Buyer-Driven Global Commodity Chains: How U.S. Retailers Shape Overseas Production NetworksLuca Giustiniano, Giulio Clarioni . (2013). The Impact of Outsourcing on Business Performance. Journal of Mordern Accounting and Auditing, ISSN 1548-6583, 153-168.Mark Gottfredson, Rudy Puryear, and Stephen Phillips. (2005). Strategic Sourcing . Retrieved from Harvard Business Review: T. Donaghu, Richard Barff. (1990, February). Nike just did it: International Subcontracting and Flexibility in Athletic Footwear Production. Retrieved from Research Gate: M. A. (1993, March). The Cornerstones of Competitive Advantage: A Resource-Based View. Strategic Management Journal, 179-191.Strange, R. (2011, May). The outsourcing of primary activities: Theoretical analysis and propositions. 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