Should companies be outsourcing? - Institute of Supply Chain Management
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Should companies be outsourcing?

  • General News
  • 7th March 2016

Adam Voak, IoSCM Australia

According to Liou and Chuang in their article ‘Developing a hybrid multi?criteria model for selection of outsource providers’ the purpose of outsourcing is to create value from outside, rather than within, the company. Yet, before this process can commence it is incumbent on the company to fully understand their core competence. Essentially core competencies are things the company does better than its competition.

Therefore it is non-core competencies that become by default the most viable candidates for the outsourcing process. For an organisation to fully understand its value proposition a number of modelling tools are available. The most significant and topical of which is Michael Porters value chain model. This model effectively enables an organisation to understand its cost advantage by better understanding costs and removing these from the value chain. It also allows a company to understand its point of differentiation, those things that are core competencies in which they do better than their competitors. Companies to remain competitive must provide value to the customer. It is this full awareness of what their customer values that is imperative in limiting disappointment once outsourced.

If an external supplier can perform the activities more efficiently and effectively then the outsourcing provider should do the work. Furthermore, if the decision is made to outsource, the organisation must ensure its agreements clearly enunciate required results and outcomes to ensure ongoing satisfactory performance. If the outsourced product or service is strategically important, then the relationship will need continuing open and transparent communication, a full understanding of the required outcomes and a strong continuing trust. Thus, allowing the company to focus fully its resources on the parts of the value chain that are most important to achieving its longer term strategies and goals.

Due to continuing cost frustrations and global market volatility, outsourcing is becoming an increasingly common option, especially the relocation of some or all of a company’s activities or processes overseas. It is hoped that the organisation can then focus on core competencies, leverage the skills of other more specialised suppliers, reduce operating costs, improve flexibility and speed to market and enhance overall airline service quality. Outsourcing while offering many financial benefits must always be weighed up against life cycle costs, control and power relationships in the value chain, capacity, reliability and expertise of the third party, distance and challenges to quality control and finally language /cultural impacts that could potentially tarnish brand.

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