Strategic Outsourcing - Essay Example

?As with any business decision, the decision with regards to whether to make or to buy ultimately boils down to an issue of the overall costs engendered by each choice. As a function of this, companies oftentimes need to engage in an in-depth level of analysis with regards to whether it is in their long-term best interests to make a product domestically or whether to buy and important the product internationally. Naturally, such a decision-making process is much more complex than merely determining the per-unit cost of purchase as compared to per-unit cost of production. As a function of seeking to understand this decision-making structure that takes place with regards to buying a product internationally and having it imported for sale to the United States as compared to producing a domestically and selling it domestically, the following analysis will seek to discuss the means by which the United States firm will decide whether or not it is in its best interests to import guns from the nation of Brazil or whether it is a better and more logical business approach to have been made within the United States and sold domestically. Furthermore, it is the hope of this author that by elaborating upon the fundamental decision-making structure that must be engaged with in order for such a choice to be made logically, the reader will come to a more full and complete appreciation for the many factors that take place prior to affirm determining what particular strategy and means of operation it will pursue. Finally, the analysis will seek to take a definitive stance with regards to whether making or buying a product is the better approach. Before delving too deeply into the issue at hand, it should be understood that such a level of inquiry necessarily demands that the firm/business entity must engage in a cost-benefit analysis of outsourcing versus domestic production. However, although it may seem that this cost-benefit analysis is necessarily something that is simple, it involves a series of steps, several different measurements, and a thorough analysis of both compliments and inputs of production as well as projected levels of sale and/or import tariffs/taxes/duties (Kisner, 2003). Due to the general complexity of this decision-making process, many firms have engaged in electronic software systems that help to keep a running tabulation of all differentials involved. However, for purposes of this brief analysis, the reader should seek to integrate with the determinant costs and benefits based upon experience analytical and non-electronically facilitated process. From even a cursory review of the make versus buy argument, the reader should come to understand there are essentially for primal numbers that the analyst must be fundamentally aware of. These four determinants which must be measured prior to any consideration being given are as follows: the volume, the fixed cost of making, per-unit direct cost when making, and per-unit cost when buying (Whittle, 2012). Accordingly, the preceding analysis will seek to engage the reader with a more full and complete understanding of why each of these four determinants must be fundamentally understood and appreciated prior to any actionable decision being made by the entity in question. Besides the obvious level of importance of the four specific values which have been listed an elaborate upon the above, their overall importance is more specifically with regards to their representation within two specific equations. Ultimately, as can be expected, these two equations are understood as “costs to buy was quote and “costs to make”; however, more often, these equations are merely referenced in terms of their respective acronyms – CTB/CTM. Respect to CTB, this can be defined as volume multiplied by per unit cost when buying (Zhu, 1997). Likewise, with relation to CTM, this can be understood as fixed unit costs plus per unit direct cost multiplied by volume. In and of themselves, the determinant compliments of these equations tell the producer/importer little if anything. However, when combined with other actionable information and placed within the functions/equations above, they necessarily help the firm/entity in question to gain a great deal of knowledge and understanding with regards to the way in which their business operation plan should proceed. As has been referenced above, the ultimate decision invariably rests upon the less costly decision; however, if the differential is ultimately small and insignificant, the decision-making framework can shift in either direction-depending on the needs firm the realities of given market. This represents what many scholars termed a “gray zone” (Mantel, 2006). This gray zone necessarily refers to the minimal gains or losses that can be accepted with regards to pursuing a specific strategy based upon no other factor than the overall longevity and scope as well is the attractiveness that the particular approach might offer decision-makers. Although it is of course necessary to understand and appreciate the fact that cost is the driving force in helping policymakers and decision-makers within the top level the side on whether to buy or to make, the reality of the matter is that any times choices with regards to this fall into this gray zone of minimal gains were benefits; thereby requiring key decision-makers to integrate with other forms decision-making in order to the balance one way or the other (Quinn, 1995). Bus far, the analysis has discussed the means by which American might seek to draw inference with regards to whether it is better to import the finished product from the Brazilian manufacturer or it is better to build product that. Similarly, by presenting some of the key determinants that are required to make such a decision, the reader has been able to gain a level of inference with regards to what aspects of information decision-makers would necessarily be seeking. However, what is not yet been discussed is with regards to the reasons for why such a decision would be made. Although it can be relevantly assumed that cost savings is the main determinant, there are a litany of factors that must be defined engaged in order for this to be better defined. Accordingly, this author will now seek to discuss the means by which a rationale for making the product domestically exists as well as a running commentary and listening for some of the rationale for importing the product after it is Artie been made internationally (in Brazil). Firstly, with regards to some of the reasons for making the product domestically, the company will necessarily need to engage with the following: the need of direct control of the product, the desire to expand the manufacturing focus, quality control concerns, intellectual property concerns, supplier unreliability, lack of competent suppliers, costs concerns, reduction of logistics costs, boy am too small to get a supplier attracted, as a means of maintaining a backup source, political environmental reasons, and organizational pride. From even a cursory overview of the level of information which is been provided in the above list, the reader can come to a well-informed understanding that one of the major determinants of the reason for making a product mystically is necessarily with regards to the overall level of control that the producer wishes to a certain product. As such, it believes that this is a product which will ultimately be regulated heavily, might be prone to market fluctuation pricing, has the potential for a high production of logistical costs shipping and other aspects, or any number of areas affecting availability of product, this would necessarily be fundamental rationale for seeking to produce the product mystically. As is the case with the American quotation Brazilian firearms, a key concern would necessarily be the length of transit and shipping fees, government regulation and/or international regulations for sale of firearms, and whatever fears might exist with regards to the stability of long-standing level of economic codependence and interrelationship the United States exhibits towards Brazil. Although this is obviously not an exhaustive list of reasons why the given firm in question might seek to make the product domestically, it is nonetheless the hopes of this author that this running list can be seen as a general indicator for some of the more salient points with regards to the dangers and fears of importing such a product from Brazil. Similarly, a running list of concerns necessarily defines the rationale for buying a given product as a means to sell it within a given market. As with the first list, there are ultimately an infinite number of reasons why a firm might use to do this; however, the following list is meant as merely a summation with regards some of the most salient points that are oftentimes engaged: the existence of strategic partnerships, brand preference, cost considerations, lack of technical expertise to produce a given good, need of a particularly small volume, or insufficient capacity to produce domestically. As with the first running list of reasons for why a firm or entity may wish to produce something domestically, the second running list which has been provided elaborates upon key and specific needs that exist within the market and must be fulfilled by a producer who is both knowledgeable and expert as well is able to fill orders and a cost-conscious manner. One aspect of the reason for buying rather than reason for making domestically which of course cannot be discounted is with regards the level of cooperation and/or the existence of preference and strategic partnership. Although it is impossible to state whether or not the firm in question within this analysis might have strategic partnership or brand preference, the exhibition of either of these could necessarily push the argument for buying in a different direction than it might otherwise have all. It should further be noted that Brazil, and by extension its economy, has experienced something of a postindustrial revolution of late. In this way, a much higher number of products is being exported than was experienced but a few years ago. In such a way, it is only logical to assume that many firms in Brazil, to include firearms manufacturers, might necessarily have existing strategic partnerships/memorandums of agreement, and/or a level of brand preference and markets around the globe. Whereas the analysis has thus far considered the situation from the perspective of the ultimate importer/producer of the finished good, the consumer and his/her tastes are also highly relevant. If one considers a situation in which a Brazilian firearms manufacturer has captured the devotion and preferential consumer advocacy of a certain aspects of the United States firearms market, it is only logical to assume that a given importers/producer would seek to leverage this preferential consumer taste by ensuring that their product were genuine representations of what that Brazilian company was able to produce (Geyskens et al, 2006). In such a way, the realities of the given market are determined not only based on cost that also based upon the level to which individuals engage with it and are expected to engage with the future. Naturally, the decision that is up for discussion with regards to the case of potential importation of Brazilian firearms is necessarily one that exhibits a large scope. Whereas smaller decisions of whether to make or to buy can be made by relatively lower level individual within the firm/entity in question, such a decision as the one which is been listed must necessarily incorporate the very upper echelons of the business/firm in question. This decision-making process should not be understated or glossed over (Baker & Hubbard, 2003). This is of course due to the fact that once all of the determinants facts and data points have been retrieved, the overall decision therefore is reliant upon the expertise of a very small handful of stakeholders within the firm. As has previously been discussed, cost necessarily provides the most powerful complement by which the decision will be made. However, if a situation develops in which complicating factors demand that cost take a secondary level of importance to other issues, the framework and rubric of the decision-making process must necessarily be fluid and flexible to accommodate this. In short, all of the analysis which is thus far been presented is contingent upon the spirit one. As such, the data collection process is necessarily the process that takes the longest. After this has been completed, data analysis is gathered (Doig et al, 2001). Depending on the complexity and range of the decision, the state analysis can also be something of process. Although it might be tempting on the part of the firm to merely rush through these two preliminary aspects of data collection analysis, the ultimate understanding is necessarily the fact that these aspect of data collection analysis serve to be the fundamental backbone and overarching rubric by which decisions and informs knowledge of the situation can be gleaned. In such a way, it is easy for the reader to understand and appreciate the reason for why such a rigid structure of preparation, data collection, data analysis, feedback, and final decision-making has been born. As such, the make versus buy decision can be considered as one of the fundamental managerial decisions within the current business world. Due to the fact that outsourcing has increased the ratio of interaction between a large number of economies and nations around the world, such an eventuality has become even more commonplace that it was within the past. Furthermore, due to the fact that many regions and nations sought to differentiate and specialize their economies with regards specific needs of the global market, the level and extent to which the make versus buy argument is exhibited has increased exponentially (Martin et al, 2010). Although many of the determinants which a been discussed are salient within the current environment, one of the most important and difficult aspects of the make versus buy decision-making structure is with regards to what the market and demand landscape necessarily look like within the coming months and years. Due to the fact that firms seek to operate on the very margin profitability and just-in-time order fulfillment, the level of importance that a firm places upon the dynamics change within the market cannot be overstated. As such, the case of Brazilian firearms importation the United States, it must be understood and appreciated to what level the Brazilian government ma curtail firearms manufacturing within the near future as well as threats and risks that changes United States legislation concerning guns and gun manufacturers licenses to produce domestically might also be affected. Within this particular paradigm, there is no safe bet. However, by engaging in each and every one of the prior determinants which a been discussed and analyzed based upon their merits within the current market and likely behavior within the future market, the firm in question will be on much more solid footing with regards to be able to anticipate trends and forgo any unnecessary picture financial hardship as a result of changing environment (Massingham 2013). In conclusion, even though cost concerns must necessarily factor into the equation as a primal component, cost concerns must not only be understood within the immediate short-term; rather, they must be understood with regards to the long-term as well as a short-term, the likely as compared to the unlikely, and the market trend as compared to market projection. Finally, with regards to whether making or buying is the best approach, it is the belief of this analysis that the answer to this must necessarily point to buying. This is due to the fact that there are a litany of costs related to production and establishing oneself as legitimate producer of good that is already evidenced throughout market. As such, a far better approach would be to rely upon essentially lower labor costs exhibited in present, the name recognition that already exists within the consumer base, and the specialization which is been developed over time within this specific aspect of the Brazilian economy. Although there are necessary strengths and benefits to both buying or making the product domestically, it is the understanding of this analysis that the lion’s share of the strengths necessarily stack in favor of buying an internationally made product and importing it into the United States. References Baker, G. P., & Hubbard, T. N. (2003). Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information. American Economic Review, 93(3), 551-572. Doig, S. J., Ritter, R. C., Speckhals, K., & Woolson, D. (2001). Has outsourcing gone too far? (cover story). Mckinsey Quarterly, (4), 24-37. Geyskens, I., Steenkamp, J. M., & Kumar, N. (2006). MAKE, BUY, OR ALLY: A TRANSACTION COST THEORY META-ANALYSIS. Academy Of Management Journal, 49(3), 519-543. doi:10.5465/AMJ.2006.21794670 Kisner, H. (2003). Make versus buy: a financial perspective. Clinical Leadership & Management Review, 17(6), 328-330. Mantel, S., Tatikonda, M. V., & Liao, Y. (2006). A behavioral study of supply manager decision-making: Factors influencing make versus buy evaluation. Journal Of Operations Management, 24(6), 822-838. doi:10.1016/j.jom.2005.09.007 Martin, P., Guide, J. R., & Craighead, C. W. (2010). Supply Chain Sourcing in Remanufacturing Operations: An Empirical Investigation of Remake Versus Buy. Decision Sciences, 41(2), 301-324. doi:10.1111/j.1540-5915.2010.00264.x Massingham, P. (2013). Cognitive Complexity in Global Mindsets. International Journal Of Management, 30(2), 232-248. Quinn, J., & Hilmer, F. G. (1995). Strategic outsourcing. Mckinsey Quarterly, (1), 48-70. Whittle, N. (2012). Performance Management. Financial Management (14719185), 41-44. Zhu, L. (1997). MAKE VERSUS BUY: THE WRONG DECISIONS COST. McKinsey Quarterly, (2), 41. Read More