Outsourcing in general

Outsourcing in general

1. What is outsourcing 2.Spectrum of outsourcing 3.Why company outsource 4.outsourcing risks 5.outsourcing process 6.drafting an outsourcing contract 7.concerns of outcourcing in scm 8.myths of outsourcing in scm

What is outsourcing? What is outsourcing? Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. Outsourcing is defined as the contracting of one or more of a company's business processes to an outside service provider to help increase shareholder value, by primarily reducing operating cost and focusing on core competencies.

The entire spectrum of sourcing

• Outsourcing,

To obtain components for products or services from sources outside the organization.

• In-sourcing,

Transfer tasks that were performed outside the organization into the organization

• Offshoring,

Outsourcing overseas or in a separate country

•  Near-shoring,

Outsourcing to cheaper overseas, still geographically closer locations, e.g. Canada and Mexico

• Rural-sourcing

Outsourcing to cheaper rural areas in the United States

• Volunteers

Least expensive but sometimes most difficult to manage

Why do companies outsource?

Why do companies outsource?

Reduces administrative burdens

Focus on strategic areas

Reduce costs

Focus on core functions

Acquire new skills

Acquire better management

Assist a fast growth situation

Avoid labour problems

Focus on strategy

Avoid major investments

Why do company outsource?

Why do company outsource?

Handle overflow situation

 Improve flexibility

Improve ratios

Jump on to bandwagon

Enhance credibility

Maintain old functions

Improve performance

Begin a strategic initiative

Outsourcing Risks

Outsourcing Risks

Short term:

pricing issues

operational issues at supplier's end

Long term:

non-performance by a supplier

nonalignment of company's goals with supplier's goals

Outsourcing Process

Outsourcing Process

1. Understanding company goals and objectives

3. A strategic vision and plan

4.Selecting the right vendor

5.Management of the relationships

6. A properly structured contract

7.Open communication

8.Senior executive support

9.Use of outside expertise

Drafting an Outcourcing contract

Drafting an Outcourcing contract

Why and what to be outsourced??

Clear business objectives

Internal and external benchmarking

Develop performance and cost targets

Develop initiative-based targets

Fulfillment of initiatives beneficiary for both parties

Review performance regularly

Expand or shrink the relationship

Concerns about Outsourcing in SCM

Concerns about Outsourcing in SCM

Fear of losing control

Lack of confidence

Lack of outsourcing education

Management philosophy and tradition

Myths of Supply Chain Outsourcing

Myths of Supply Chain Outsourcing

My Outsourced partners are all supply chain experts

Partners have state-of-the-art IT infrastructure

By outsourcing production and fulfillment, no need to worry about execution

Outsourced partners will provide expert project management

Outsourcing automatically gives a time-to-market advantage

Fulfillment is easier to outsource than manufacturing

Thank you