Supply Chain Management and Outsourcing - Essay Example

? Supply Chain Management and Outsourcing 26th, April In the contemporary market and business world, various pressure factors influence companies, therefore, responsible for shaping and defining the operations and functions of most of them. The level of globalization today is high, compared to the pat, as science and technology, including world communication systems keeps advancing at a high rate (Wisma, 2008). The aspect of globalization therefore, highly influences various companies, especially the international companies. Apart from globalization, the cost factor and competition in the market are other pressures, which shape the operations of various companies. These among other factors have forced most companies to develop new strategies, which might help them gain competitive value in the market, in order to compete favorably, despite all the pressures in the market (Wisma, 2008). Nonetheless, most of the strategies, which companies have adopted mainly include those that will help to differentiate the companies. These include research and development, demand and customer management, and regulatory compliance, among others (Sople, 2009). In addition, in order to compete healthily in the market, companies today have invested in their supply chain management and functions, such as manufacturing, distribution, and logistics. One of the most important strategy, which companies adopt today with regard to supply chain management is outsourcing in the business supply chain. This is instrumental in the business, since it helps enables for goods, information, and services in the company to be distributed in an effective manner, including all processes from raw materials, manufacture, all the way to customer delivery (Sople, 2009). This paper will therefore, focus on supply chain management and outsourcing in business supply chain as a function in the overall supply chain management, and why it is important for companies. Outsourcing in business supply chain is an aspect and a function of supply chain management in a company. However, supply chain cannot be regarded as a function of a company, since this is a network, which is made up of different companies. Therefore, supply chain management mainly involves how each company implements the different cross-functional relationships between its major customers and suppliers, within that network. Nonetheless, for supply chain management to be effective in a company, the company must involve each of its function in supply chain management. It is important to note that supply chain management is still a new business model, which companies started to adopt because of various pressure factors in the market (The Times of India, 2011). Today, it is demanded that companies should uphold both social and environmental responsibility. In addition, companies must adequately respond to the ever dynamic needs and demands of its customers in the market in order to remain competitive. Companies too are faced with the pressure of ensuring sufficient access to resources in order to sustain their business operations. It is also crucial for a company to maintain its profitability and grow its revenue and market share. All these factors influence and determine the success of any company in the market. Nonetheless, for a company to be successful in all these factors, it must be able to manage the different relationships, which emerge because of these functions. Therefore, a company should integrate these various business networks and relationships in a manner that will be ensure positive outcomes for the company. This management of the relationships between these different networks in a company, is what is entails the process of supply chain management (Sople, 2009). Different companies today practice supply chain management. However, not all of them are successful in this process. Those companies, whose management does not recognize the importance of integrating business’ network of business relationships in a beneficial way, are more likely to fail in their supply chain management. Nonetheless, a company that succeeds in its supply chain management is one that manages its relationships with various networks in the company, in an effective manner. Therefore, it is paramount that the management of a company, which is responsible for supply chain management, should ensure that it understands all the processes involved in supply chain management, and how these should be implemented in a successful manner. Nonetheless, this kind of management is in a position to know and understand that highly integrated supply chains are of great value in a company, as these result in high stakeholder value, as well as act as a source of sustainable competitive advantage for the company in the market (Inbound Logistics, 2008). Supply chain management, if successfully implemented in a company, might result in numerous benefits. The major benefit of supply chain management is that it increases the operational efficiency of a company (Sweeny & O’Riordan, 2007). This includes efficiency in all processes, beginning from manufacture to customer delivery. Supply chain management also important in a business, since it helps a company address most of the issues resulting from globalization. These issues include growth of multinational corporations, global expansion of a company, outsourcing in a company, and strategic partnerships, among others. Therefore, supply chain management is globally necessary. Additionally, supply chain management enables a company to achieve effective customer service. This is achieved, since an effective supply chain management ensures that the right products are delivered to customers at the right time and location. Additionally, the company might offer after-sale customer services and support, which all contribute to quality customer service in a company (Sweeny & O’Riordan, 2007). There are different current issues in supply chain management today, which a company might assess and ensure to perform in accordance with them, to maintain a competitive advantage in the market. First, there is the issue of business renovation. Here, a company ought to ensure that it evaluates its performance, and improve its quality of products and services, and operational costs, among others. Overall, business renovation helps in improving operations towards the success of supply chain processes (Trkman & Groznik, 2010). Secondly, a company must put in consideration the supply chain risks involved in the supply chain processes. There are a myriad of risks in supply chain, as well as in the external business environment, which might affect the company adversely. Therefore, the company management must identify, assess, analyze, and address various risks in its supply chain, for successful supply chain management (Trkman & Groznik, 2010). Another important current issue in supply chain management involves the supply chain frameworks and standards. Today, there are various frameworks and standards such as SCOR, ISO 9001, ISO/IEC, and GSI, among others, have been developed in order to streamline companies. Therefore, different companies are sometimes caught in a dilemma, concerning which standard to adopt and implement (Trkman & Groznik, 2010). Nonetheless, a company must choose a supply chain standard, which will increase the effectiveness of its supply chain management. Additionally, performance measurement is crucial today in supply chain management. A company must align its performance measurement with its supply chain objectives, strategy, and business model. Nonetheless, performance measurement enables a company to identify loopholes in its supply chain management, and fix them (Trkman & Groznik, 2010). Finally, being the age of information, chain informatization is essential in supply chain management today. Global supply chain mainly relies on information technology to increase flows and collaborations between different networks. However, it is challenging for most companies today to integrate information technology, business process, and performance. However, to successfully integrate these, a company could view the business processes as a bridge between information technology and performance (Trkman & Groznik, 2010). Nonetheless, these are some of the current issues in supply chain management, which a company has to consider for improved performance. Various companies today have adopted outsourcing as a strategy in their business supply chain management. This therefore, implies that there are a number of advantages, or benefits, which a company might experience from outsourcing in its supply chain management. Nonetheless, supply chain management might happen in various ways. However, outsourcing might replace the whole department concerned with purchasing, information systems, marketing, finance, and operations, in a company (International Association of Outsourcing Professionals, 2010). This process is applicable to different companies in the world, provided they are in the right environment and have necessary conditions to outsource. Therefore, if a company outsources, this means that it procures different services and products, which the company previously provided for itself, from external suppliers. Nonetheless, for the past decades, outsourcing has played an important role in the supply and chain management operations of companies (Alvarenga & Malmierca, n.d). Depending on the nature of the company, companies today outsource in-house transportation and manufacturing processes, among others, so that they can concentrate on other business processes such as marketing, research, and product design, among others. It is however, important to note that some companies today restrict outsourcing in their supply and chain, thus, only outsource the logistics functions, and not non-logistics functions, which remain in-house, such as supply planning, inventory management, and forecasting (Alvarenga & Malmierca, n.d). Nonetheless, outsourcing in global supply and chain management is important to companies, thus a company should consider outsourcing part of its supply and chain processes. First, outsourcing allows for a flexible infrastructure by a company. This helps the company to utilize only the process management infrastructures it needs, since the company technology and infrastructure is already leveraged. Leveraging technology and infrastructure also helps a company to experience variable costs, which might be lower, compared to when the company does not outsource. In addition, outsourcing makes the company to shift responsibility to the outsource provider, thus enabling the company to experience the expert supply chain planning and logistics. Outsourcing in supply chain also enables a company to experience processes that are more efficient and less costly. When a company outsources several processes from an external supplier, this leads in streamlining of the processes, thus resulting in lower costs by a company, compared to what the company would have spent, if it did not outsource. Global expansion is another positive effect of outsourcing. Most companies aim at expanding globally. Therefore, outsourcing offers an opportunity for such companies to experience different new markets on variable costs. Therefore, from this, a company might establish the most favorable location to invest. Additionally, when a company outsources, it gets the opportunity to access new channels. For instance, when business processes are supplemented with new capacities, such as e-commerce in various locations, and call centers, among others, this provides a company with new channels and new sources of revenue. Outsourcing plays a major role in a company’s risk management. This is mainly on the side of the outsource providers. Since most of outsource providers are well established, and have various branches in different places, if one branch is affected by a risk, these can easily use their other branches to provide their services (Inbound Logistics, 2008). Nonetheless, any company in the world can outsource in supply chain management, as long as it is able to sustain the process. The theory of comparative advantage might be used to the situation of outsourcing in supply chain management. This theory is also called the comparative cost theory, and was developed by David Ricardo in the year 1817. Ricardo, in this classical theory of international trade argued that any products produced by companies in a country all utilize the resources that are readily available in the country, including environmental resources. These will therefore, produce products in excess and export the surplus. In addition, a country will import products, which it does not manufacture. Therefore, in the case of outsourcing in supply chain, if the external outsourcing partner is in a better position to perform better in various business activities, compared to the client company, then it is only appropriate that the client company lets the external outsourcing provider to perform those activities (Kosnik, Wong-Mingji, & Hoover, 2006). Nonetheless, today, there are various issues in outsourcing in supply chain, which have influenced different companies in different ways. A study that was conducted in 532 companies from 68 different countries, and in 14 different industry types, showed that failure in outsourcing in a company disrupts the whole supply chain in the company. Results showed that approximately 75% of the studied companies had experienced at least a supply chain disruption in 2012, and in most cases, the external outsourcing supplier was the source of the outsourcing failure, which caused the disruption in the company’s supply chain (Zurich Insurance, 2012). Apart from the external outsourcing provider, several other factors influence outsourcing in the global supply chain today, causing disruptions. According to Zurich Insurance (2012), the leading cause of disruptions in supply chain is unplanned IT and telecommunication outages, and the negative weather conditions. Weather and IT are vital aspects in outsourcing, and these influence transport and communication respectively, which are part of outsourcing. Therefore, when these two are disrupted, this causes a disruption as well in the whole supply chain. Additionally, the issue of currency volatility considerably affects outsourcing in supply chain today. The cost incurred by companies in outsourcing is highly influenced by the trending value of the currency used by the company. In the study conducted on different companies, one company in 2011 had incurred a loss of more than $1.277 million in a single incident (Zurich Insurance, 2012). These are therefore, some of the current issues, which influence outsourcing in supply chain, and, which are beyond the control of most companies. Although outsourcing in supply chain is beneficial to most companies, this does not come without risks. Companies that outsource are generally exposed to a certain variety of risks, including loss of control over the outsourced services and loss of in-house skills, among others (Hill & Jones, 2009). However, the company through the development of various strategies can address these risks. Nonetheless, outsourcing in supply chain remains beneficial to companies, and more companies ought to consider outsourcing, if they have not. Even though there are risks, these can be addressed through appropriate risk control and risk management strategies. Therefore, it is important that a company invests sufficient diligence and risk management treatment in their supply chain, since disruptions might occur in the supply chain. Therefore, if a company employs appropriate risk management strategies, disruptions in the supply chain will not injure the company at a higher degree, compared to when the company has not planned for risk management (Chopra & Sodhi, 2004). In conclusion, outsourcing in supply chain is a vital strategic initiative, which any company can adopt. As outsourcing influences supply chain in various ways, supply chain managers today must understand the challenges of implementing outsourcing in their supply chain. This paper has discusses the situation of supply chain management in a company, and addressed the importance of a company adopting outsourcing in its supply chain, while considering both the positive and negative outcomes of outsourcing in supply chain. Nonetheless, future research on this topic needs to investigate the seemingly increasing negative outcomes in outsourcing in supply chain, and explore alternative strategies, which might help companies to minimize negative outcomes from outsourcing in their supply chain. Additionally, through empirical and theoretical research should be used to establish the most appropriate conditions under which the identified strategies might be used in a company, in order for the company to realize strategic value. Similarly, future research must enable companies to choose how they will implement outsourcing in their supply chain effectively, and what essential organizational changes companies need in order to achieve value from outsourcing in their supply chain. Finally, future research needs to develop a metrics for assessing the benefits and costs of outsourcing in supply chain. This study topic and discussion will have a positive influence in the field of supply chain management, and this might be experienced in future. The study has increased the knowledge on supply chain and outsourcing in supply chain. From the discussion, a company manager might learn the importance of outsourcing, and reasons why companies are encouraged to outsource in their supply chain. At the same time, one will be made aware that outsourcing in supply chain comes with various risks, which can however, be managed. In future therefore, company management that is concerned with supply chain, and are interested in outsourcing will be able to make wise decisions, when implementing outsourcing in their supply chain. On the other hand, this study lays a foundation for future research on various core aspects of outsourcing in supply chain, which impact on a company. References Alvarenga, C. & Malmierca, P. (n.d). Core Competency: The Case for Outsourcing Supply Chain Management. Retrieved from http://www.accenture.com/SiteCollectionDocuments/PDF/282Accenture_Core_Competency_20_The_Case_For_Outsourcing_Supply_Chain_Management.pdf Chopra, S., & Sodhi, M. S. (2004). Managing risk to avoid supply-chain Breakdown. MIT Sloan Management Review, 46(1), 53–61. Retrieved from http://sloanreview.mit.edu/ Hill, C., & Jones, G (2009). Strategic Management Theory: An Integrated Approach Strategic Management Series. London: Cengage Learning. International Association of Outsourcing Professionals (2010). Outsourcing Professional Body of Knowledge. London: Van Haren Publishing. Inbound Logistics. (2008). Determining When to Outsource Supply Chain Management Services. Retrieved from http://www.inboundlogistics.com/cms/article/determining-when-to-outsource-supply-chain-management-services/ Kosnik, T., Wong-Mingji, D., & Hoover, K. (2006). Outsourcing vs. insourcing in the human resource supply chain: a comparison of five generic models. Retrieved form http://www.visusgroup.com/articles/outsourcing.pdf Manuj, I., & Mentzer, J. T. (2008). Global supply chain risk management strategies. International Journal of Physical Distribution & Logistics Management, 38(3), 192–223. Sople, V (2009). Business Process Outsourcing: A Supply Chain of Expertise. New York: PHI Learning Pvt. Ltd Sweeny, E. & O’Riordan, A. (2007). Outsourcing and its role in the supply chain. Retrieved from http://arrow.dit.ie/cgi/viewcontent.cgi?article=1012&context=nitlbk The Times of India (2011). Eight best practices for supply chain outsourcing. 7 September. Retrieved from http://articles.timesofindia.indiatimes.com/2011-09-07/services-apps/30122628_1_supply-chain-outsourcing-current-capabilities Trkman, P. & Groznik, A. (2010). Current Issues and Challenges of Supply Chain Management. European and Mediterranean Conference on Information Systems. Retrieved from http://www.iseing.org/emcis/emcis2010/Proceedings/Accepted%20Refereed%20Papers/C26.pdf Wisma, M. (2008). Global Business Management: Current Trends and Practices. The Journal of Applied Business and Economics, 8(1), 96-109. Retrieved from the ABI/INFORM Global database. Zurich Insurance (2012). Outsourcing Failures Now in Top 3 as Causes of Supply Chain Disruption. Insurance Journal. 8 November. Retrieved from http://www.insurancejournal.com/news/international/2012/11/08/269888.htm Read More