International Supply Chain - Essay Example

?International Supply Chain: Outsourcing, Insourcing, Offshoring, and Backsourcing Developing both sourcing strategies and relationships with key suppliers holds immense importance for an organization because it inflicts a direct and profound influence on a business’s current trends and future prospects. This essay is primarily based on addressing and contemplating the most significant and most talked about issues, paradoxes, and concerns which are encountered by an organization quite frequently in the process of engineering myriad smart strategies and establishing relationships with critically valuable stakeholders. Not only a collection of such issues will be identified and scrutinized with the help of relevant research material, but also a critical discussion will follow concerning the proposals introduced by scholars as a way of mitigating the issues faced by businesses all over the world. The terms outsourcing/offshoring and insourcing/onshoring are often interchangeably used, but the meaning implied by the term backsourcing explicitly refers to bringing back the work in the country or into the organization which was previously outsourced for whatever reasons (Williams 2012). Outsourcing was previously considered a pretty favorite theme in the business world. It is implied by research that though outsourcing is related to quite a number of negatives, it is always going to retain strength in the business world to a certain extent. Also, outsourcing principles help a business “expand into other markets” (Bender 1999 cited in Elmuti 2003). Outsourcing comes into full action when an organization decides to pull its own workforce out of some activity and assigns an external party or contractor to perform the desired job. Insourcing, in contrast, implies that the things or tasks which were never before considered by an organization to be accomplished within the workplace by personal staff workers have started to be taken back. Outsourcing/offshoring, insourcing/onshoring, and backsourcing are all different terms designated to different kinds of sourcing strategies. It is worth mentioning that with each sourcing strategy multiple challenges and issues are associated for which many efforts have been taken over the time to facilitate the employers. These efforts largely focus on how such potential problems can be mitigated to let the business advance successfully. It is claimed by Williams (2012) in his insightful article that currently the most sought sourcing strategy in the business world is backsourcing. Previously, the organizations only preferred those tasks to be performed by their workers at which they were best. All the remaining work tasks for which the in-house workers were not qualified enough or which the employers wanted to be performed at lower costs was actively outsourced by making deals with external parties. “Outsourced service centers employ the expertise and best of breed technology” (Cimato 2011, p. 2). The popularity of outsourcing is evident from an old 1999 study which revealed, “two-thirds of companies world-wide already outsource at least one business process to an external third party” (Goldstein 1999 cited in Elmuti 2003). US business publications suggest that this pattern of outsourcing every possible thing created such frenzy that even the workers had to outsource themselves but in contrast to all those business approaches, “now backsourcing appears to be gaining ground” (Williams 2012). One UK third-party logistics study based on evaluating the nature of change in sourcing strategies in the UK reveals how more and more companies are now intent on bringing work back home. It also identifies that a staggering number of websites for that purpose are devoted now for helping organizations in retransferring jobs and taking work back either inside the country or organizations. A riveting example of this shift in sourcing trends is related to Tesco’s decision of taking back “a large part of its warehousing operation in 2009” (Williams 2012). Tesco made this decision after realizing that different jobs, which were previously actively outsourced, could also be handled by personal staff workers at home quite effectively. It is worth mentioning here before going on to evaluate why backsourcing is currently popular that the concept of outsourcing is not entirely devoid of benefits, rather it also has its share of multiple positives. Though a crucial benefit associated with outsourcing as identified by Williams (2012) is savings but it should not be assumed that all outsourcing does is control costs (Financial Institutions Canada 2009, p. 1; Cimato 2011, p. 1). Still, the element of savings is claimed to be quite valuable because it allows the businesses to achieve many targets at lower prices than they could be achieved by relying on the same workers who are assigned the rest of the tasks. One example of such outsourcing deals is related to how different organizations prefer to hire foreign expatriates to perform specific tasks at rates for which they cannot convince their own workers to work in fear of violation of psychological contract or protection of employment regulations. In contrast, foreign expatriates are often willing to do anything at any rate in order to gain momentum, ground, and financial security in the foreign land. By distributing jobs among outside service providers at significantly lower rates, the managers discover, “they can cut costs and maintain quality” (Elmuti 2003). This is done when the managers want the same level of caliber and hard work from the external workers that they would want from the other staff employed inside an organization but want to pay them far less than they are bound to pay to the in-house employees. It is claimed that most of the challenges of outsourcing are related to “the transfer of staff, involvement of a middleman, the drawbacks of contractual arrangements, the creation of a competitor, risk and loss of control” (Williams 2012). It is justly suggested that a company cannot wish away all its problems by making as many outsourcing deals as possible as “in some situations, it may create as many problems as it is intended to resolve” (Anderson 2012). The managers manage to reap some benefits from outsourcing but at heavy prices. This is because in the process of outsourcing different works, many organizations end up creating more competitors. This is a fact secret to none that with each new competitor, the level of danger and insecurity also climbs higher. After being assigned an outsourced task, the contractors naturally acquire a firmer grasp on the intricate business and economic skills over time and eventually become powerful enough and gain enough trust to overcome the organization itself and enter the business market themselves. Quite a riveting example of this consequence of outsourcing is related to how IBM by making oursourcing deals with Microsoft and Intel ended up eventually creating new powerful competitors for itself. IBM decided to outsource heavy work related to operating systems and microprocessors to Microsoft and Intel which were both not quite big then and presently, “Microsoft ranks 38th in the Fortune 500 and Intel is 56th” (Williams 2012). Research claims, “even though outsourcing is a popular means of meeting internal IT needs, press reports suggest that backsourcing is becoming increasingly common” (Wong 2008, p. 102). The reason outsourcing suffered and backsourcing started gaining momentum is related to all the demerits identified above like the sense of loss of control, involvement of middlemen, and creating potential competitors. However, it is argued that organizations’ decisions to opt to outsource does not always necessarily imply that they will lose control over customer’s experience (Cimato 2011, p. 1). Still, ill-fated and improperly reached outsourcing decisions can quite effectively make businesses fall an easy prey to cunning challengers in the form of external contractors who may decide to enter the market themselves after spending some time with the organization. “Outsourcing can increase an institution’s dependence on third parties, which may increase its risk profile” (Financial Institutions Canada 2009, p. 1). This sourcing strategy is laden with multiple risks which should be carefully addressed and scrutinized by organization because otherwise, the reputation of an organization in context of customer trust and relationships, supplier network, and quality of work can drastically suffer. Williams (2012) claims that backsourcing is especially popular in the US currently because more and more businesses have begun to realize that they need to take back the previously outsourced work to become increasingly secure in areas of control, supply chain, work quality, and customer satisfaction. The managers have started to ask themselves how much they should outsource (Anderson 2012), how much damage is associated with imbalanced outsourcing, and how this subject should be addressed. It is an unequivocal fact that backsourcing has replaced outsourcing in the US and the government there is investing more in backsourcing because it does not want the same mistakes associated with outsourcing to be repeated in the future and also the businesses operating there feel a strengthening need to regain control over different areas. However, the situation in the UK stands in contrast because although the private sector in the US is actively rebalancing itself in context of sourcing strategies, people responsible for making decisions about private sector “still seem to see outsourcing as a universal panacea” (Williams 2012). In the context of challenges faced by most organizations when developing relationships with key suppliers, general consensus is that maintaining healthy relationships with suppliers is an effective marketing strategy. It is also implied that most issues are born when management of suppliers lacks professionalism and experience which restricts “long-term value creation” (Hughes & Weiss 2007). In a study based on emerging challenges encountered by organizations in maintaining supplier relationships, Sheth and Sharma (1997, p. 91) claim that proper relationships hold the potential to profoundly affect a business’s marketing strategies due to which they should be taken significantly seriously in order to ensure a scintillating business future. So as to maintain enhanced performance in this age of fierce competitiveness and market turbulence, more and more organizations are shifting away from transaction oriented business themes towards relationship oriented marketing strategies. But, it is deplorable that not many companies have as yet “institutionalised new ways of working with their suppliers as partners rather than vendors” (Hughes & Weiss 2007). That is the reason why assisting reports based on introducing multiple ways to help businesses in establishing close relationships with key suppliers can be found in a staggering number presently. “General Motors, Xerox, Black & Decker, and Nieman Marcus” (Sheth & Sharma 1997, p. 91) are the names of just a few reputable companies which look forward with enthusiasm to strengthening their relationships with key suppliers because good supplier relationships can facilitate the process of implementing strategies like quality platforms (Sheth & Sharma 1997, p. 92). According to a 2004 US study, “only 8 per cent of sourcing and procurement executives” (Hughes & Weiss 2007) were found to be satisfied with their key supplier relationships. A growing body of research related to the importance of getting closer to key suppliers and issues faced by businesses in the process has brought forward many notable challenges. It is suggested that supply chain management and trust issues form two disturbing challenges related to supplier relationships (Hacker, Israel & Couturier 1999, p. 1). It is further stressed by the research that to address such challenges, “the inefficiencies associated with suppliers” (Sheth & Sharma 1997, p. 94) should be reduced. Research also stresses that commitment and trust issues related to suppliers make up a significant challenge of an extremely serious nature. This implies that developing safe and healthy relationships with key suppliers is critical for safe functioning of an organization. It is claimed that “trust is an essential ingredient to the success of the joint endeavor” (Cyr 1999 cited in Hacker, Israel & Couturier 1999, p. 2). When organizations lack trust in their suppliers and vice versa, the probability of making strategic advancements in supply functions is reduced to zero which is why it should be considered critically beneficial by the businesses to treat their suppliers like trusted and valued partners. Also, the employers should make greater investments in their key suppliers in the context of training especially. It is claimed that “organizations need to develop a culture where relationships with suppliers is valued” (Sheth & Sharma 1997, p. 96). Lack of mutual goals between suppliers and organizations is also identified as a potent challenge because only those relationships with suppliers can sustain which hold the elements of mutual benefits, commitments, and investments. Supplier relations lacking these crucial elements create serious hurdles for the organizations which strive to gain competitive advantage. Bonding with suppliers demands the organizations to feel empathetic towards their suppliers (Sheth & Sharma 1997, p. 98) and this empathic attitude is potential of addressing a lot of problematic challenges in maintaining supplier relationships. Concluding, this much remains clear from the above discussion that outsourcing caused a huge uproar prior to prevalence of backsourcing. However, it is argued that the efficiency coming along with outsourcing is not genuine in nature due to myriad problems like dangerous competitors, compromised quality of work, and loss of control. It can be quite challenging and hard to keep an eye on everything at the same time maintaining the same desired level of control without stumbling over rough tracks as a result of outsourcing deals. With increased popularity of backsourcing, it is now acknowledged that outsourcing should be seen as just another strategic process which should not be turned into a core ideology upon which the entire business is structured. Other than backsourcing, getting closer to key suppliers is also a very effective way to advance smoothly because this not only helps businesses retain their positions as strong competitors but also assists them in the context of effectiveness. Read More