Operation Management Week 4 - Assignment Example

Module: Discussion Question Operations Management Outsourcing is the practice through which companies seek to reduce costsby transferring portions of their work to external suppliers as opposed to undertaking them internally (Minevich and Richte 4). Its benefits center on cost reduction as business operations are transferred to cheap labor sources. The expertise of such labor sources alongside faster turnarounds also lets an organization concentrate on its main functions, hence efficiency. Offshore outsourcing is especially associated with loss of jobs and ripple effects it has across the entire economy.

Skilled and semi-skilled labor is most affected with the job losses observed to be permanent. This causes reduced purchasing power among Americans hence hampering market growth. Besides this, there is loss of tax income in many levels of government, reduced contribution to Social Security alongside skyrocketing unemployment (Minevich and Richte 9). Whether or not to give tax breaks to companies so as to discourage outsourcing should be informed by the long term effects of such a move. Tax breaks would take a toll on government income and burden the already soaring national debt thereby hampering service provision and infrastructural development; this consideration should hence be muted.

My personal opinion is that outsourcing should be discouraged in organizations since it places them on a false and myopic sense of financial stability that is not at par with the national status. The government should reign in on such companies since the recent economic decline was largely due to irresponsible free economy tenets. Alternative cost reduction measures such as energy costs through eco-friendly technologies should be pursued instead. Discussion Question 2 Capacity in the manufacturing industry can only be increased proportionately to demand to a point beyond which capital investment will have to be instituted, while in the service industry can unlimitedly be increased proportionately to demand in hiring of people.

Variable costs increase with increasing capacity while fixed costs are unaffected in the short term. A lower fixed cost: variable cost ratio means that variable cost is most important in capacity planning, while a higher ratio means that capacity increase translates to cost per unit produced. Essentially, variable costs influence capacity planning since they are directly affected by activity dynamics. Maximizing space is crucial since it ensures that physical expansion is only undertaken when it is actually necessary.

As a result, it increases capacity while operating on the same initial capital investment ultimately leading to lower fixed cost per unit which translates to larger profit margins. A plant in which 50% of space is left unused portrays wastage of resources as it not only delays breaking even due to the huge initial costs, but also increases fixed costs such as that for electricity. So long as capacity remains fixed, the higher fixed costs translate to higher cost per unit which indicates underutilization of resources.

The main advantage of strategically utilizing warehouse space is the fact that it leads to increased capacity under the same facility and enables firms to avoid unnecessary costs through expansion. Work Cited Minevich, Mark and Richter, Frank-jurgen. Global Outsourcing Report 2005. (2005). Web. 9. 9 September, 2011.