Virtual Organizations and Outsourcing - Essay Example

Name: Lecturer: Course name: Course code: Date: The topic states that are product costing unimportant for virtual organisations that are outsourcing their production operations. Virtual Organizations Virtual organisations refer to the corporation that operates in the global of electronic business (e-business) or electronic e-commerce. A virtual business organisation is described as it composes several business partners sharing the obtainable resources and costs for the purpose of enhancing and producing either product or service (Jennings). This cooperation can be either permanent or temporary based. The set up of this cooperation requires large capital that requires the partners to contribute the capital required. Each of the partner’s contribution determines the partner’s strengths and their role in the virtual cooperation. The members of the virtual organization are situated in wide geographical areas where they can only communicate on groupware. Companies’ might also come together to form a virtual business organization that markets their globally. Virtual organisations are determined with its distinctive ability to a rapidly varying and adaptable response to changing markets. This organizational feature is brought as a result of global technology, varying structures cost, different customer requirements, and the global economic nature. The mode of approach to this type of organization is considered technical since its success will be determined by the corporation of the partners. The vital necessities and requirements of virtual organisations states that every employee have the essential skills, to contribute to the value chain of product and service plan, production, marketing, distribution, and generally making causative schemes to the operational level (McIvor). Virtual Organisations are based at minimalism initiatives that are absorbent to the varying organisational technology, and exposure limitations. This organization is obliged to develop measures against the limitation to employing of expatriates, through outsourcing and associations that contribute to the success of the organization. Virtual organisations operates under high response to activities, effective in utilisation of resources, low cost incurred, empowerment of staff, squatted level of managerial bureaucracies and high combination of technological factors that back-up the business processes and equip the knowledge of the workers. Some examples of virtual organisation that operates its business activities through the internet are Ebay.com and Amazon.com. Outsourcing Outsourcing refers to the process of acquiring goods and services from external vendors rather than providing the similar services or producing the same goods within the organisation. The Cost accounting department have a prominent role in determining the products and services that the organization should be outsourced. Their decisions will be base in the input cost minimization while increasing the output of the firm. Majorly the most significant strategic cause for outsourcing is to control the business operating costs. If in a survey of outsourcing, the companies’ costs will constitute of reduction by an average 10% through outsourcing. Management accounting department should be seriously embarking on strategic determination of the cost incurred in either producing or providing the services internally and outsourcing the same products. In the case where outsourcing is anticipated to limits, the companies cost than the business should outsource their products and services. Outsourcing is considered inevitable development in the industry; virtual business organizations are starting to strategically vote outsourcing, as broad management perspective strategy rather than utilising cost reduction tool. Outsourcing of organization most critical processes are gradually escalating, but it is considered at an immature state that requires the management accounting expatriates to widely embark on its benefits to the business organization. The marketplace is approaching shipping and logistics suppliers into the global market by using the vertical growth of outsourcing manufacturing in within different countries. As a result of this, this the transportation cost and warehousing cost, they are defiantly reduced since the virtual organizational business located in different countries can be given to specialized agencies that are operating in such business activities. This describes that product costing is irrelevant since out sourcing process takes into account the cost minimization. Business exertions will be undertaken based contractual agreements for a fixed figure, and these agencies account all the costs unfolding the production and services. Virtual business organizations analyses the definite amount of cost to be incurred to crop down the chances of cost uncertainties by the process of outsourcing. Product Costing Product costing is the cost accounting technique that facilitates accounting for costs related to specific products. These costs are premeditated for specific purposes, and also they are determined and differentiated. This product costs comprise of direct costs such as a direct cost of materials, direct cost of labour and direct overheads while indirect costs constitutes manufacturing overheads cost such as cost of indirect labour, Indirect material, and indirect overheads. Product costing is a tool that enables the management accounting team to determine the exact cost in producing certain product. It also enables the management to make various cost-effective decisions such as producing the product in the organisation or to outsourcing the production function. The decisions purposely contribute to effective economic strategy in pricing their product in the market. Product costing and Outsourcing in virtual organizations Products costing technique plays a significant role in any business organisations whether traditional or virtual each business involves the routing of acquiring and selling of goods and services at an aim of meeting an ascertained marginal income. Therefore in establishing the cost of trading the product or services in the market, the cost incurred in the company in producing or outsourcing the traded products must be calculated. Even though in the era of e-marketing business virtual organisation is outsourcing their production operations, the cost incurred for these products even though in batches are incurred by the organisation (Grant). Companies’ must make a sensible decision with regard of sourcing or outsourcing their production processes. Management accounting must determine the exact cost to a company that is the dollar cost of producing a product or providing an activity internally or externally. It involves a differential cost that is the difference in cost between two alternatives which gives rise to a differential revenue that is the difference in revenue between the two alternatives. They must quantify how important the activity is to the company's strategic capability i.e. How much current costs be reduced if an outside company's price for manufacturing the activity is less and if a reengineering plan could reduce costs to the best outside price, or even clouting the price, would it still be worth for a company's to use internal resources to perform that function. The company that decides to outsource its products and services must consider both the production cost and the cost distributing the product or service. The main prominence is on the cost, not price that is where costing comes into the depiction, the true cost of a company's various business activities must be determined by establishing the value of a specific business potential that includes quantifying the value of contracting outsourcing supply chain logistics. For Example, IDC virtual organization approximate that U.S. companies can enhance their production capacity by using of offshore outsourcing from $5.5 billion to $17.6 billion over a period of time, due to advantageous lower cost of high-quality labour in countries like China, Eastern Europe, and India. Since outsourcing exposes the company the opportunity to change its product line rapidly, the flexibility is a valuable change to the company's market position or to exploit new customer opportunities (M. J. Kotabe). The growth of manufacturing outlets that could produce special-purpose products and services aimed at position markets are the perfected organization for outsourcing hence high volume production will be achieved swiftly and cheaply within a short time Outsourcing significantly provides three systems of performance measures that outweigh the need of product costing technique. This measure includes; a. Financial measures- This measure facilitates the principle of cost moderation in achieving high performances and returns. It determines the amount to be incurred in the project and predetermine the project returns. b. Quality measures- outsourcing collaborate the quality of the product avail in the market for consumers to buy and the cost incurred in the same. Virtual organizations consider utilizing outsourcing process to acquire quality services at a cheaper cost thus proving the market with quality products with less cost (Drury). However outsourcing provides a competitive market structures with affordable product cost. c. Strategic measures- Outsourcing provides an ideal market study on the economic behaviours, schemes of subsidization of high product cost, and efficiency in production factors. d. Outsourcing aids in controlling market dimensions such as consumer satisfaction, reduction of time factor in accessing of products and generally promotes quality products in the market. The impact of outsourcing proactively establishes commitment of top management to expose their businesses on terms of cost regulation, instant delivery of products and services and enhancing business performance (Grant). This strategic measure takes the part of product costing system, hence giving unimportance of the product costing in the outsourcing business. Merits of outsourcing over product costing in virtual organization Virtual organisation have introduce the Just In Time (JIT) approaches which is well adaptable to paradigm of outsourcing, where the products are produce once the order is being given for specific goods and services. For example organisation such as Dell Computers only manufactures its personal computers once an order is placed by the company, hence minimising the cost of inventories. Product costing system costs control activities is then considered unnecessary since the outsourcing factor embarks on production quality, timely, and offers quality services to the customers. The dynamic changes in business organisations and environments that is described, in coupled with the changes in cost of information technology apace the need of product costing system to customise their cost accounting requirement of cost moderation. Outsourcing in virtual organization entails information systems that provide an immediate admittance to real-time financial and non-financial information that aids in reducing the production cost. The outsourcing system drivers include product volume, promotions, price, quality, reputation customisation, and product management based on budgeting, and analysis of revenue variances (Corbett). The globalisation of business processes by extending of virtual organizations will further intensify competitive nature of business. This will reduce the cost disparities that arises due to production and transportation that increases the product cost. Critically outsourcing is observed from positive and negative crucial sides to be contributively enhancing growth of business organisation structure Product costing in virtual organization that outsource its production operations is not without its risks as the company depends on suppliers as suppliers could increase the price and scarify quality and delivery performance (Bacon). Virtual organisation to be successful, the partners must have a shared purpose and shared goals, they must trust one another implicitly and recognise that given the interdependence of their respective fates, fortunes, and any benefit that is derived from their co-alliance virtual organisation, risk must be seen to be, and accepted, as shared amongst the company. Conclusion The results of implementation of outsourcing factor in virtual organizations provides very useful in corporation systems, where the most deceiving factor is of product costing knowledge on claims of determining the cost effective business schemes. Outsourcing in a virtual organization has an immense role that determines the accurate measures that leads limitation of cost and maximising of the product output. Outsourcing of products has exposes the business to quick information structure that facilitate the business organization to opportunities that have high marginal income without the need to spend much more money on unnecessary. Virtual organisations which based its operation in outsourcing will operate in an increased productivity, smaller costs inputs and customer satisfaction. Although product costing aids in minimising of input cost and increasing returns, its benefits is outweighed by the factor of outsourcing and technological aspects. Outsourcing in virtual organizations might be having based constraints but the prospected confidence is that there is a future of outsourcing in virtual organizations. Work Cited Bacon, C. "Guiding principles for managing outsourcing relationships." New Zealand , 2003. Carney, W. " Outsourcing in virtual organization and benefits: Navigating the right course. ." 2008. Corbett, M. "Multiple factors spur outsourcing growth in organization ." cengage learning , 2009. Grant, Graham K. Wilson. "The Consequences of the outsourcing in virtual organization ." United Kingdom: Oxford university Press, 2012. 8. Guterl, F. "Outsourcing gains speed in corporate world." Journal of Labor Research (2009): 573-578. Hervé Stolowy, Michel J. Lebas. "prodcut costing and outsourcing business operations ." Cengage Learning EMEA, 2006. 374. Jennings, D. "Outsourcing opportunities for financial services." International Journal of Strategic Management (2007): 43-49. Kotabe, M. "Efficiency vs. effectiveness orientation of global sourcing strategy: A comparison of U.S. and japanese multinational companies. Academy of Management Executive." 2007. 107-119. Kotabe, M., J. Murray, and R. Javalagi. "Global sourcing of service and market performance: Au empirical investigation." Journal of International Marketing (2004): 10-14. Drury, Colin. "Management and Cost Accounting. 7th Ed: Student's manual." Cengage Learning EMEA, 2008. 363. McIvor, Ronan. "The Outsourcing Process: Strategies for Evaluation and Management." Cambridge University Press, 2005. 154. Restrepo, J. and Tokman, A. "Cost Accounting techniques in outsourcing product operation." Journal of Management Accounting (2011): 219-228. Read More