Analysis of the by Booi Hon Kam, Ling Chen, and Richar Wilding - Article Example

An analysis of the article by Booi Hon Kam, Ling Chen, and Richar Wilding (2011) Name Unit Title The primary motivations of this research and what is the main argument put forward in the study The motive for this research is to look at the way in which the Chinese apparel retailers operating in different market environments manage their production outsourcing risks. The article also is motivated by the urge to know why different firms choose to manage their outsourcing risks in a particular way. Most of the business organizations have resulted to outsourcing due to strategic as well as economic benefits that have been associated with it. This is due to the fact that if the outsourcing program works, the business is able to reduce costs, increase their flexibility, increasing level of expertise and discipline. Despite the advantages that are associated with outsourcing, there are risks that occur. The authors of the article look at the outsourcing risks in the Chinese apparel industry from the point of minimizing the failure of outsourcing other than gaining the success of the outsourcing (Booi, Ling & Richard, 2011). The authors’ main argument is that the available literature has failed to look at the best outsourcing strategy for a firm depending on its circumstances. There is also an argument that there is no research that has been done regarding the outsourcing strategies that are used in China. Most of the literature on outsourcing has been directed towards the strategies with a view of gaining the outsourcing success rather than preventing its failure. The argument is supported using the literature from several articles (Booi, Ling & Richard, 2011). To support their points of arguments, the authors start by explaining how to manage the outsourcing risks. According to the article, outsourcing is the arrangement between the firms with an external supplier. The external supplier under the contract is expected to provide to the firm goods and services which the firm would have otherwise produced internally. The firms outsource in order to increase their productivity and performance. This is by leveraging on the capabilities of the supplier. The authors analyses two apparel makers in china to prove their argument. From the results, the two companies have adopted different approaches in managing their outsourcing risks. Each of the company strategy in managing their risks is proved to be related to what the company perceives as a threat. For example, the CL China’s main threat is an erosion of products’ quality while for TY Apparel is failure to achieve speed to market. The two types of threats make the companies to use very different tactics in managing their outsourcing risks (Booi, Ling & Richard, 2011). The article has been able to explore the areas where other literature on outsourcing risk management has not been able to. This is through analyzing the firms outsourcing risk management strategies and why they are applied. Every firm that uses outsourcing has their distinct model for managing the risks. For example, TY apparel has focused on using the less rigid Guanxi approach in their cooperation with partners. In contrast, CL China used a formal contract. This was meant to ensure there was due diligence followed in a bid to maintain their value drivers in the market. The two companies operate under different levels of complexity which requires different means of relationship management. The authors have been able to fully support their arguments with relevant literature and using the two case studies (Booi, Ling & Richard, 2011). The authors establish that firms utilize different outsourcing risks management depending on their main threat. The method that is used to manage the outsourcing risks depends on what the firm sees as their value drivers. According to the authors, the emphasis that a firm place in their management of their production outsourcing risks is also determined by the technical and non technical value drivers. The key contributions of the article and the applicability of the findings to supple chain management in general and outsourcing strategy in particular The article gives insight to the outsourcing risks management and the way in which firms adopt different strategies in managing them. The article in particular looks at different strategies that firms employ while dealing with the risks depending on value that is placed on products, ratio of technical to non technical contents that is in value drivers, distinct product features and order size (Booi, Ling & Richard, 2011). Despite the positive aspects of outsourcing, there are many potential risks as this article portrays them. The article is able to show that though a company can outsource their products, they cannot outsource risks. The negative outcome of outsourcing are; poor on time delivery, customer satisfaction, damage on products quality, poor planning and supply interruption risk. Research indicates that most of the firms have to spend 40 up to 60 percent of their revenues with an outsourcing partner (Haugen, Musser & Lovelace, 2009). The amount that is spent by the third party continues to increase for some companies while for others it has not changed. The difference between the firms expenditure with their outsourcing partner is determined by the way in which they handle their outsourcing as explained in the article and other literature. The article also contributes in risk analysis and management. This is through elaborating that though risk analysis is an important tool, there must be risk management for it to work effectively in eliminating the outsourcing risks. According to Haugen, Musser & Lovelace (2009), risk analysis should be differentiated from risk management. Risk analysis is the process in which is performed before selecting the supplier. The suppliers have to be compared with a set of risks which are determined by the outsourcing company. This helps the company to choose their supplier and come up with a well defined supplier relationship. Risk management has three main elements. The elements are; service level agreement, accuracy of billing, and the supplier contract management. For the firm to be able to benefit from the contract with suppliers, they must perform contract risk management (Rost, 2006). This is a process by which the firms determine the level of risks in each of the contracts and categorize it. The level of monitoring of each type of contract is based on the level of risk. For high risk contracts, there must be continuous reviews while low risk contracts may not requite active monitoring (Schniederjans, Ashlyn & Dara, 2005). As the article have analyzed the company threat and their risk management strategy, it must be applied based on level of risk. The article contributes highly to outsourcing decision making process. The decision to outsource is driven by; costs of internal versus external supply, enhancing firm core competency, quality of the products or services and need for specialized capability. According to Rost (2006), the firms must be keen on identifying any shortfall that might arise from the partnership by analyzing it before making a contract. Failure of outsourcing partnership can arise from poor risk management strategy that is being used by the firm. As the article points out, the strategy should be based on the firm main threat and value put on its products. There is a need for having a strategic outsourcing to avoid disruptions in the production line. For the apparel industry, this can lead to business failure (Hunsberger, 2011). This shows that the flaws that are associated with the outsourcing partner can be a major setback for the industry. The article contributes immensely on the strategic outsourcing, especially for technology intensive companies. For the company such as CL China, where there is a need for technology, they are more focused in strategic contracts rather than the traditional Guanxi model in china. The lessons learnt and implications of its findings to outsourcing strategy in the future global supply chain environment As the companies running becomes more complex and competition increases, firms are more inclined to concentrate on what they can produce better and outsource the rest. Outsourcing is also being accelerated by the current downturn in the global economy. Most of the global firms have become involved in outsourcing their strategic activities. This is a trend that is expected to increase in future as more firms realize the importance of outsourcing to their performance. Despite the positive outcomes of outsourcing, many firms face problems as they try to outsource. This is due to use of inappropriate strategy in carrying out outsourcing. Each firm should use a distinct strategy in outsourcing depending on their circumstances (KavčIč & Tavčar, 2008). There is also need for the firms to look at ways in which they can prevent outsourcing failures rather than focusing only on achieving the outsourcing success. Outsourcing is associated with a range of risks despite the positive outcomes. The major risks associated with outsourcing are; increase in costs, lack of capabilities by the service provider, outsourcing core activities, staff job loss, hidden costs, poor flexibility, loss of control and diminishing advantages among others. As more global firms start to outsource in their value chain, there is a need for having a comprehensive strategic outsourcing risk management (Hunsberger, 2011). This is an exercise that will help the firms in their value protection. Objective of risk management is to prevent any occurrences of delivery failures (Burnson, 2011). The firms have to understand what is their main value driver which that enable it to achieve customer expectations. These are the products or services characteristics that are vital for the firm in delivering what the customers appreciate. For firms to choose appropriate outsourcing risk management, there is a need for analysis. This should involve screening the prospective partners into details. This should be determined by the company’s main drive. As the case study elaborates, each of the two companies used different approaches in screening their suppliers. For CL China, their main approach was to protect their reputation in the sport wear market. For TY Apparel, their main concern was establishing the legal status of their suppliers and their reliability (Booi, Ling & Richard, 2011). The companies should then engage their prospective suppliers to tests by signing short term contracts and monitor the process (Kavčlč & Tavčar, 2009). For the future global supply chains, there will be a need for multiple sourcing. The main aim may be to enhance competition among suppliers and avoid technology leakage. Multiple suppliers are also important in ensuring there is speed to market and product availability (Brown & Scott, 2005). The choice of the type of relationship with the suppliers will be determined by the firm approach in dealing with delivery failure. This can be through a comprehensive contract or a formal contract like Guanxi used by TY Apparel. The main threat of outsourcing lies in how to manage risks. Successful firms are those that adopt the best strategy not only focusing on achieving success, but one which looks at ways of reducing partnership failure. Though traditional relationship management such as Guanxi may succeed in some firms, these relationships can fail spectacularly. This is where the firm is engaging in global business. For example, Guanxi model cannot work in other countries apart from China due to different cultures. The decision to outsource for a global firm should focus more on relationship management contracts that are well evaluated. There is a need to understand that outsourcing is not just a casual relationship involving making and buying but a complex decision which can build or break as a business (Heywood, 2001). These are important lessons that can help the firm’s in future global supply chain environment. References Booi, H. K., Ling Chen, & Richard, W. 2011, ‘Managing production outsourcing risks in China's apparel industry: a case study of two apparel retailers’, Supply Chain Management: An International Journal, Vol.16, no. 2, p. 428-445. Brown, D. & Scott W. 2005, The black book of outsourcing how to manage the changes, challenges, and opportunities, Hoboken, N, J.: John Wiley & Sons. Burnson, P. 2011, ‘Near-shoring/right-shoring strategies: weighing the risks of global sourcing’, Logistics Management Highlands Ranch, Vol.1, p. 50. Hunsberger, K. 2011, ‘The risks of outsourcing’, Project Management Network. Vol. 25, no. 2. P. 23. Haugen, D. M., Musser, S., & Lovelace, K. 2009, Outsourcing. Detroit, Greenhaven Press Heywood, J 2001, The outsourcing dilemma the search for competitiveness, London, Financial Times Prentice Hall. Kavčlč, K & Tavčar, M 2009, ‘ Most outsourcing is short-term - what can we learn from it?’, International Journal of Business and Systems Research. Vol. 3, no. 1, p. 58-77. KavčIč, K., & Tavčar, M. I. 2008, ‘Planning successful partnership in the process of outsourcing’, Kybernetes. Vol. 2, no. 3, p. 241-249. Rost, J. 2006, The insider's guide to outsourcing risks and rewards, Boca Raton, FL, Auerbach Publications. Schniederjans, M. J., Ashlyn M. S. & Dara G. S. 2005, Outsourcing and insourcing in an international context, Armonk, N.Y.: M.E. Sharpe Read More