Strategic Sourcing, Off-shoring and Outsourcing - Literature review Example

Strategic Sourcing Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Instructor Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Contents Contents 1 1.0 Introduction 2 2.0 Strategic Sourcing 3 2.1 Off-shoring and Outsourcing 4 2.2 On shoring 4 2.3 In shoring 5 2.4 Near shoring 5 3.0 Implication of New Concepts in Sourcing On Operation within Supplies Functions 5 3.1 Reduced cost 5 3.2 Competitive advantage 6 3.3 Virtual Development 7 3.4 Loss of Skills 7 4.0 Conclusion 8 5.0 References 8 1.0 Introduction It is quite evident that organizations across the globe are increasingly concentrating on what is perceived to be core business. As a result of this, there have trends in increasing amount of work causing major elements of the business to be sourced or sub sourced from external sources of the organizations. According to Feenstra and Hanson (2004), today terms such as off shoring and outsourcing have become common concepts in the current supply chain management theory. Nevertheless, this practice is coming under increasing review where organizations are involved in shifting this trend with new idea such as on shoring, in shoring and near shoring. It is for such reasons that this paper focuses on understanding what sourcing strategies through describing both new and old concepts of sourcing. Further, the paper will identify the various implication brought about by the new concepts especially on operation within supplies functions (Feenstra and Hanson 2004). 2.0 Strategic Sourcing Görg and Hanley (2005) maintain that, strategic sourcing is defined as an organizational procurement process that is known to continually re-evaluate and improves a company purchasing activity. Within any production environment it is considered to be a major component of supply management. Strategic sourcing offers managers with opportunities to extract cash from value chain, service innovation and growth as well as ensuring that a stage is set for continued product. Managers should realize that the key to unlocking value in sourcing widely rest within understanding an effective capital management (Görg and Hanley 2005). Research indicates that sourcing decisions is a major determinant of profitability which widely makes contribution to the financial health of any given institution. The main distinguishing attributes of effective strategic sourcing is that it plays an integrative role in an organization strategic planning process. However, the key in successfully achieving the described integration widely lies in the capabilities and skills of individuals within the purchasing function (Bullen and Chittenden 2010.). 2.1 Off-shoring and Outsourcing Bullen and Chittenden (2010) maintain that, although within organization the terms outsourcing and out-sourcing are used in conjunction, there are two different concepts. Off-shoring implies getting work done in a different country. It is considered to be beneficial in that it assists in lowering costs, good availability of skilled people and getting work done by way of pooling global talent. On the other hand outsourcing refers to contracting work out to another external company. Benefits attached to outsourcing are that it enables companies to take utmost advantage of specialized skills, labor flexibility and cost efficiencies (Antràs and Helpman 2004). Off-shoring is usually criticized for transferring working positions to other countries. Other risks involved within this kind of strategic sourcing is language differences, poor communication and geopolitical risk. On the other hand, risks involved in outsourcing include increased reliance on third parties, misaligned interests of vendors and clients and constant lack of internal knowledge of critical business operations (Bozarth et al 1998). 2.2 On shoring On shoring is the practice of outsourcing whole or parts of a service to a different organisation or company within ones own company location. Costs, law and language are common factors that may contribute to the choice of onshore sourcing strategy (Ashley 2008). The application of On shoring sourcing strategy is the use of local researching companies like for a food-based production industry since their research work will have direct contact with the consumers. The local consumer’s are significant in the growth of any industry specifically if they are the major target of any company (Ashley 2008). 2.3 In shoring In shoring is defined as the practise of company to bring back jobs to home of origin and probably after contracts termination or on closure of affiliates in a foreign country. Illustration of in-sourcing strategic is where countries that are expertise in specific contraction work like the laying of roads relocate back home towards or at the end of the contract . 2.4 Near shoring Near shoring is the action of companies to send work to countries that are off shore and are close geographically (Rai et al 2009). Illustration of near shoring is USA based manufacturing companies engaging in sending work in European countries that are within same time zone. Therefore, they are insured of efficiency due to the elimination of day-off likely in regions of different time zones (Oshri et al 2009). 3.0 Implication of New Concepts in Sourcing On Operation within Supplies Functions With shifts of trends from outsourcing and off-shoring to new concepts of in, on and near shoring, it is quite evidence that there are various new implications especially within organizational supplies functions. These implications are; 3.1 Reduced cost On, in, and near shoring are being used by many organizations as a way of taking advantage of the cost disparities which are experienced in domestic market. In engaging in these strategic sourcing suppliers are able to poses higher capacity utilization, widely considers production as their competency and finally, achieves volumes of scale. With the named skills, suppliers produce greater capability which is of low cost (Bronfenbrenner and Luce 2004). For example, companies that deal with software and are not located in metropolitan area can develop an opportunity while competing on price with domestic markets. A firm in New York might choose to inshore to another US company as compared to off-shoring to an Indian company. Reduced cost can be experienced in shipping across Mississippi as compared to shipping overseas (Semanik and Fred 2011.). As compared to off-shoring where there is a lot of language barrier making organizations invest more on learning new language, in new concept of sourcing there us reduced cost since there are no language barriers. Different time zones, long distances, suppliers spending more effort and time which are experienced by suppliers in off-shoring are not experience in near, on and in shoring thus reducing all cost involved(Cho and Kang 2001). 3.2 Competitive advantage It is quite evident that for many organizations, a definable competitive investment solution will mean highly investing closer to their customer base which is described through engaging in new sourcing concept name; in, on and near sourcing (Kotabe 1998). Today, globalization is constantly transforming with more focus on regionalization perspective. For example, USA companies who have operations in Europe and Asia and primarily serves US markets, there is a growing pressures to engage in near shoring to competitive markets such as Brazil and Mexico. Semanik and Fred (2011) maintains that, on-shoring on the other hand creates competitive advantage in that companies have establish call centers and back office so as to improve customer service which is the key advantage. Most activities in on-shoring are not in the form of returning to the producer but to domestic markets choosing to create new investments in domestic companies as opposed to overseas. This is an added competitive advantage in that better and more responsive access to regional customers’ base is maintained (Kotabe et al1998). 3.3 Virtual Development Contrary to off-shoring, near shoring greatly offers virtual development teams that posses the ability to collaborate both with internal staff who are in same time or similar time zones. Elimination of different time zones, on, in and near shoring providers can offer maximum time to market schedules for new products and projects. Lowson (2002) maintains that, apart from time zone differences, geographical advantage created by these sourcing concepts allows internal personnel as well as external developers to meet in person during decision making. This is not the case in off-shoring as face to face meetings expensive due to high traveling cost involved which in turn result to misunderstanding on direction in suppliers functions being undertaken. 3.4 Loss of Skills It is quite evidence that strategic sourcing can pose negative implication to an organization due to overdependence on an external company in carrying important organizational function. According to Murray (2001), confidentiality and security of data can be a major threat to the company well being. Engaging in near, in and on-shoring can make an organization lose its control over quality and timing of outputs due most of output functions are taken by an external vender which may result to poor quality of commodities. The final produced outputs may generate negative effects which could in turn destroy company image. Some external especially regional suppliers may attempt to bypass a potential directly into the domestic market after building up their expertise with this same buyer (Murray 2001). 4.0 Conclusion With today’s globalization and improved in technology, on, in and near sourcing is the way companies should go in developing strategies especially those involved in suppliers function. It is therefore important for these companies to ensure that right partners for strategic sourcing are chosen. Leadership insight coupled with skills is essential in managing and shaping complexity which may be experienced in sourcing strategies. Organizational leaders should manage company sourcing through making critical decisions and elimination of excess resources being locked up in sourcing. The shift into new sourcing concepts that is near, on and in shoring has enabled most organizations across the globe to relocate their suppliers operation to locations considered to be of low cost. 5.0 References Antràs, P. and Helpman, E. 2004. 'Global Sourcing.' Journal of Political Economy 112 (3): 552-580. Ashley E.2008. Outsourcing for Dummies. Wiley Publisher, Hoboken, N.J. Bozarth, C., Handfield, R. B. and Das, S. K. 1998. 'Stages of Global Sourcing Strategy Evolution: An Exploratory Study.' Journal of Operations Management 16: 241-255. Bronfenbrenner, K. and Luce, S. 2004. 'Offshoring.' Multinational Monitor 25 (12): 26-29. Bullen, C and Chittenden, J. 2010. Implementing strategic sourcing: a manager guide to world class best practices. Zalbommel: Van Haren Publishing Cho, J. and Kang, J. 2001. 'Benefits and Challenges of Global Sourcing: Perceptions of US Apparel Retail Firms.' International Marketing Review 18 (5): 542-561. Feenstra, R. and Hanson, G. 2004. “Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm”, NBER Working Paper, No. 10198. Görg, H. and Hanley, A.2005. “International Outsourcing and Productivity: Evidence from the Irish Electronics Industry”, North American Journal of Economics and Finance, Vol. 16, Iss. 2. Kotabe, M. 1998. 'Efficiency versus Effectiveness Orientation of Global Sourcing Strategy: A Comparison of US and Japanese Multinational Companies.' Academy of Management Executive 12 (4): 107-119. Kotabe, M., Murray, J. Y. and Javalgi, G. 1998. 'Global Sourcing of Services and Market Performance: An Empirical Investigation.' Journal of International Marketing 6 (4): 10-31. Lowson, R. 2002. 'Assessing the Operational Cost of Offshore Sourcing Strategies.' International Journal of Logistics Management 13 (2): 79-89. Murray, J. Y. 2001. 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