OUTSOURCING SUPPLY CHAIN

ACTIVITIES

SUPPLY CHAIN

A network of connected and interdependent organisations mutually and

cooperatively working together to control, manage, and improve the flow of
materials and information from suppliers to the end users
 OUTSOURCING SUPPLY CHAIN
ACTIVITIES

OUTSOURCING

A management strategy by which major non-core functions are

transferred to specialists, clients, and external providers to enhance
organization’s flexibility and competitiveness in rapidly changing
marketplaces.
 OUTSOURCING SUPPLY CHAIN
ACTIVITIES

What to outsource?

Activities that are:

• resource intensive
• Available from the niche market suppliers with proven technology and
skills
• Requiring relatively little client-side management
• Where very clear contractual accountabilities can be established.
OUTSOURCING SUPPLY CHAIN ACTIVITIES

SCOPE

• Out-tasking
• Co-managed services
• Managed services
• Full outsourcing
 OUTSOURCING SUPPLY CHAIN ACTIVITIES

DRIVERS

According to Beulen et al. (2000)

• Quality
• Cost
• Finance
• Core business
• Cooperation
 OUTSOURCING SUPPLY CHAIN ACTIVITIES

BENEFITS

• Increased operational efficiencies

• Increased speed to market
• Reduces risk to business failure
• Increased focus on the firm’s core competencies
 OUTSOURCING SUPPLY CHAIN ACTIVITIES

PROBLEMS

Perkins (2003) reported that

“at the end of the first year, more than 50% of the companies that have
outsourced major IT functions are unhappy with their outsources… By the end of
the second year 70% are unhappy”.

Problems reported include:

• Overdependence on suppliers, and lack of supplier flexibility
• Cost escalation, and lack of management skills to control suppliers.
 OUTSOURCING SUPPLY CHAIN
ACTIVITIES
According to Reilly and Tamkin,
(1996)
Outsourcing could led to:
• Loss of competitive advantage
• Insufficient internal investment
• Loss of initiative via knowledge
sharing with suppliers
According to Lacity and Hirschem
(1995)
Areas where outsourcing seems not to
work well include:
• Where unique knowledge of the
business is required
• Where all services are customised
• Where the employee culture is too
fragmented or hostile for the
organisation to come back together.
 OUTSOURCING SUPPLY CHAIN ACTIVITIES

Problems reported in relation to outsourced suppliers include:

• High staff turnover

• Poor project management skills
• Lack of commitment to the client or industry
• Shallow expertise
• Insufficient documentation
• Lack of control over larger suppliers
• Poor staff training
• complacency over time
• Divergent interests of the customer and the provider
• Cultural mismatches between customer and provider organisations
 OUTSOURCING SUPPLY CHAIN ACTIVITIES

Outsourcing Relationship Management

According to Macronimous.com, (2011)

Maintaining outsourcing relationship involves:
• Sustaining a good relationship between key management personnel
• Developing well-defined, quantifiable performance metrics
• Setting up special committees
• Developing incentives and penalties
• Arranging periodical review meetings
• Training outsourcer personnel
• Understanding cultural differences