Outsourcing and Supply Chain
Outsourcing is when a company uses a third party to make a product or perform a service. On the other hand, a company is said to offshore when it moves some of its operations to another country (Josephson, 2018). Outsourcing or offshoring have several advantages and disadvantages to the company outsourcing or offshoring, the destination country and the citizens of both the source country and the destined country. Outsourcing could be of great value to a company as it may lead to an increase in the company’s profits. Increase in profits may occur when the company outsources or offshores to a country with lower labor costs.
Another benefit of outsourcing is that it may lead to an increase in economic efficiency. Outsourcing transfers responsibility to a more specialized company with the appropriate skills to handle such tasks. Specialized companies have highly skilled workers in a particular field reducing losses due to poor work is done or negligence. Off-shoring also provides benefits to foreign as it gives the job opportunities to those countries. Additionally, offshoring improves international ties between trading countries. When the amount of off-shoring activities between two countries become significant enough the two countries will have no choice but to strengthen their relationships (Josephson, 2018). On the other hand, outsourcing could have drawbacks as it could lead to job loss, lack of transparency, slippage in the labor and environmental standards and it can backfire on the outsourcing company.
Supply Chain Globalization
The Coca-Cola Company is bottling multinational beverage company that operates in almost every country in the world (Slack, 2016). The company has embraced supply chain excellence as its major priority. To achieve this, the organization has embraced diversity to meet customers’ expectations. Its commitment to continuous adjustments ensures a continuously evolving portfolio. Also, diversity in the company’s leadership through effective succession planning and a mix of seasoned internal and external employees to ensure the company integrates industry best practices (Slack, 2016).
The greatest challenges that all supply chains endure is the ability to keep up with trends and adjusting with the ever evolving technologies and processes. Coca-Cola has managed this by using a variety of techniques like the validated modeling techniques which optimizes the finished product sourcing and leveraging the supplier spending. It also shares its best practices and commercializes new products and packaging rapidly. Also, the company reinvests in its supply chain with unanimity by using state-of-the-art (Slack, 2016). When the company excels in those mentioned above, it creates a significant impact on the company’s gross profits margins and shelf availability which ensures a positive impact on the company’s net revenue.
Another example of a company that has embraced supply chain globalization is Nike. Nike is an innovative sportswear company that ships out more than one billion items of apparel and equipment annually (Crets, 2016). It must always adapt to the customer demand and tremendous growth. Therefore its main priority is to ensure a tenable manufacturing and supply chain operations. It has always achieved this by incorporating sustainable solutions into its facilities such as renewable energy. Its primary sources of energy are wind, solar, biomass, geothermal, and hydroelectric (Crets, 2016). Additionally, its products are fabricated from recycled footwear materials, and more than 95 percent of the waste generated on site is recycled. This ensures that the whole Nike ’s supply chain is 100% renewable.
Nike blends sport and culture into the design of their footwear (Crets, 2016). The purpose of these designs ranges from the running track to the basketball court and essentially, the streets of the city. They include classic basketball and running shoes. Nike embraces the sports culture which means teamwork. Teamwork gives their employees the competitive nature just like the athletes they serve enabling them to reach the highest goals. The key goal is to delight their customers and exceed their expectations. Nike focuses on its customers, and the staffs do it in a collaborative, team effort. The company continuously innovates in the supply chain and works on a more sustainable better customer service environment. This gives Nike an upper hand in the global market.
Off Shoring Outsourcing and off shoring are both supply chain strategies companies use to improve their businesses. Outsourcing is when the business designates another company to perform part of the business duties. Off shoring is when outsourcing is located in a different country than the original business. Off shoring is used to save money for the business if they can provide the resources for the business duties cheaper than the country of origin. Support functions are what is usually outsourced or off shored. Businesses should keep core competencies in house because that is what the business does best. Support functions are business activities that distract from the core business, can be performed more efficiently and often cheaper by someone else, improves the businesses ability to serve the customer, and reduces cost of doing business. Some examples of support functions are human resources, information technology, accounting, inventory management, customer service, training, accounting, facilities maintenance, and cleaning. The exception would be if any of these are your businesses core function.
Off shoring is used if a business activity can be performed more defiantly by someone/somewhere else and it improves the five criteria to your customer (what, time, cost, quality, relationship) or reduces the cost of doing business. Off shoring will enable a business to utilize the resources they have to focus on the core capacities and develop new core capacities.
Pros of outsourcing and off shoring include: financial savings, diminished cost, access to a highly efficient team (this is their core capability), faster delivery time, and focus on core competencies by parent company, more versatility, and reduced risk.
Cons of outsourcing and off shoring include: possible language, time zone and cultural barriers, loss of control over quality and costs, potential delays in delivery, delayed support, disclosing confidential information, and less control over operations.
Two companies that embraced supply chain globalization successfully are Dell and Zaria. Dell’s supply chain is often rated as one of the best. Dell doesn’t build computers according to a sales forecast and have other companies sell them. Dell sells directly from its own website and call centers and builds to order which enables them to cut distributors and retailers out of its supply chains and get paid up front. “ The company outsources some operations, such as component production and express shipping, but runs its own assembly lines in America, Ireland, Malaysia, China and Brazil. Last year the company opened its third assembly plant in America, in Winston-Salem, North Carolina. This can make a desktop computer every five seconds. Dell decided to expand in America in order to be close to its customers, but it is still growing in Asia too” (the Economist).
Zara is a clothing manufacturing company whose parent company is Inditex group out of Spain. Zara is a fast to market fashion clothing company who completes the manufacturing process in about five weeks. This is important as fashions change rapidly and consumers are fickle when it comes to what is in and what is out. Zara follows the fashion trends closely and buys some of its garments and material from Asia often partly finished or undyed. About half of its clothing is manufactured in house at its main base in Spain or by a close knit cluster of manufacturers in the area. Zara uses trucks to deliver in Europe and air to their stores in other parts of the world. “Zara avoids mass production. Although some stock is replenished, its clothing, for both men and women, is deliberately made in small batches. This helps create a scarcity value: better buy now in case it is gone tomorrow. It also keeps shops looking fresh and reduces markdowns. At Zara, the number of items that end up in a sale is about half the industry average” (the Economist).
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