Transportation Logistics Management 313

Please read original post and respond to both student forums!!!!!! 100 words minimum 

Original Post 313

What are the advantages and disadvantages of outsourcing to Low Cost Countries (LCCS)? How can the risks of outsourcing be mitigated?

  

STUDENTS RESPONSE 

Kurt 

Companies that outsource jobs and production to Low Cost Countries (LCCS) was a hot topic during the presidential election, but has died down in recent months in the media from what I have seen. The advantages for outsourcing to LCCS gives the manufacturer higher annual sales by the fact that they do not have to pay their workers the same wages required as they would have to in the United States. As companies outsource production to LCCS, they increase the economy of those countries. As this may be seen as a bad thing for some and a good thing to others, Winser (2016) points out that “while China’s labor cost is low compared to many countries, inflation and high economic growth has contributed to a sharp increase in wages there” (p. 329). This causes companies to move to other LCCS to continue capitalizing on cheap labor. Winser (2016) proves this point by saying “a shift is seen in production from the “textile hub” in southern China to Vietnam because of the comparatively cheaper labor cost” (p. 329). An advantage to utilizing LCCS is gives other countries the chance to compete in the global market. A disadvantage to the company getting caught outsourcing to LCCS could be a sharp decrease in sales due the American population has shown anger in the past when finding out their items were made by countries that abuse labor laws. Risks of outsourcing can be mitigated by taxing imports to equal the amount it would cost to produce the same products at home. This may case a shift in how supply chains manage the production of certain products they distribute.

JawanaGood Morning Class,

I would first like to begin with a definition.

Low Cost Country Sourcing (LCCS) is "a procurement strategy in which a company uses foreign companies with lower wages to produce resources for manufacturing. By finding companies that operate on leaner budgets than domestic operations, a company may be able to reduce operational expenses. Low-cost country sourcing is a part of a company's global sourcing strategy" (BusinessDictionary.com).

There can be a variety of advantages and disadvantages to outsourcing or low-cost country sourcing.

Some advantages can be lower operational costs, lower wages, access to materials or resources that may not be readily or easily available domestically, increased productivity, access to skills more commonly used or available in other countries, fewer regulations or taxes/ fines and more (Voranai).  

The Lower operational costs can mean cheaper labor, cheaper materials, facilities or even cheaper fees. Depending on the country chosen some materials or skills may be more readily available in that country than normally available domestically which means fewer delays and backorders because production and manufacturing can continue with no problem. There is also the productivity that can increase due to different time zones or even the possibility to manufacturing be able to continue 24/7. Some countries may also have fewer regulations, fines or taxes for outsourcing companies or exported items.

Some disadvantages can be poor quality of manufactured items, poor management of workers, poor data or systems maintenance or up keep which can result in lost information, distance from the manufacturing plant and headquarters, as well as  political issues within the country, and more (Voranai).

The poor quality meaning the materials used may not be properly inspected or quality control is difficult to maintain from such afar distance as well as is management. This mean quality materials may not be produced due to labor issues, employee issues, materials quality issues, etc. Poor management can also mean poor system or information up keep which can skew information sent headquarters or the data that is shared with partners. Political issues can cause shutdowns or issues with employees and thus stop production as well. The distance from the main headquarters being in one country and manufacturing or operations being conducted in another can have a significant impact on product output.

Considering the many disadvantages and advantages there are from low-cost country sourcing one company must weigh the benefits versus the risk to determine if this is best for their company. They must ensure that their supply chain management processes are capable of handling the issues that may arise.