Need a Rewrite on case studies Purchasing & Vendor Management homewok

Unit 7

Discussion – Case study

Do you believe in the reasoning for outsourcing provided in the text or do you believe there is another reason behind the popular concept?

Per the article there are two main reasons companies have outsourced the Information technology (IT) services to India. First, they have the continuous challenge to reduce costs in order to stay competitive. The less strategic work has already been largely done offshore and there is not enough savings left in these areas for some multinationals. Second, Indian companies have geared up to serve the entire IT services value chain, which includes the consult, design, build, operate and maintain elements of technology. (Luthra)

Outsourcing has become a way to increase an organization’s flexibility to meet rapidly changing market conditions, focus on core competencies and develop competitive advantage. As a result, the need for world class Supply Management has intensified and positioned supply managers as agents of strategic change critical to supply chain success. ( (Burt, Petcavage, & Pinkerton, 2010) pg. 218) Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees. Often the company itself could perform the tasks that are outsourced, but in many cases there are financial advantages that come from outsourcing. Many large companies now outsource jobs such as call center services, e-mail services, and payroll. Separate companies that specialize in each service, and are often located overseas handle these jobs. Outsourcing is increasing rapidly, not just materials, many business functions are being outsourced. Outsourcing can enable: leveraging of the supplier’s expertise and increases in innovation Outsourcing results in: lower staffing levels, reduced costs, and more flexibility. ( (Burt, Petcavage, & Pinkerton, 2010) Slide Handout Chapter 10 slide 7)

I believe that with this outsourcing the U.S. companies are losing the strategic advantage. Some strategic issues are: core competencies, supplier dominance, the creation of strategic vulnerabilities and the dangers of vertical integration. ( (Burt, Petcavage, & Pinkerton, 2010) Chapter 10, slide 8) From a strategic level something’s that should not be outsourced are: an item that is critical to the success of the product, an item that requires specialized design, manufacturing skills or equipment and items that fits well within the firm’s core competencies. ( (Burt, Petcavage, & Pinkerton, 2010) Chapter 10, slide 10)

There are some drawbacks to outsourcing as well. One of these is that it often eliminates direct communication between a company and its clients. This may prevent a company from building solid relationships with their customers, and often leads to dissatisfaction on one or both sides. (Burt, 2010) There is also the danger of not being able to control some aspects of the company, as outsourcing may lead to delayed communications and project implementation. Any sensitive information is more vulnerable, and a company may become very dependent upon its outsource providers, which could lead to problems should the outsource provider back out on their contract suddenly. ( (Burt, Petcavage, & Pinkerton, 2010) Chapter 10, slide 24)

Companies usually outsource their customer service for gaining competitive advantage over their competitors. Well-structured outsourcing arrangements should lead to a more efficient allocation of roles and responsibilities among the parties to the arrangement and, from a customer’s perspective, can bring a range of benefits. Usually companies outsource activities for increased efficiency (which can translate into an important competitive advantage), reduced risk associated with running effective IT departments, controlled costs (by releasing capital for investment in other areas such as revenue-producing activities), increased reach by providing access to world class capabilities that might otherwise not be affordable, better investments, and an improved focus on core business activities. (Gluck n.d.) Ultimately, outsourcing should serve to make companies more flexible and agile, ready to meet the challenges of doing business in an increasingly technological and competitive world, while providing cost savings and service level improvements.

Reference:

Luthra, V. (2007). India & the Extended IT Enterprise. Inside Supply Management, 18 (2), 26.

Burt, D. N., Petcavage, S. D., & Pinkerton, R. L. (2010). Supply Management (8th ed.). New York, New York: McGraw-Hill Irwin.