Supply Chain Management

Chapter 15 : Role of Outsourcing in a Supply Chain

Outsourcing

Reasons for Outsourcing

Strategic Reasons for Outsourcing Tactical Reasons for Outsourcing Transformational Reasons for Outsourcing

Deciding What to Outsource

Outsourcing Process

Assessing Technology and Demand Trends
Assess Strategic Alignment and Core Competencies Conducting Cost Analysis Considering Non-Cost Factors

Issues in Outsourcing

Involvement of Suppliers Supplier Base
Single Vs Multiple Sourcing Local, National and International Sourcing

Areas of Outsourcing

Transportation
Warehousing
Inventory Management Information Systems Packaging

Advantages and Disadvantages of Outsourcing

Outsourcing Practices

Vendor Managed Inventory Third Party Logistics
Fourth Party Logistics(4PL) Providers.

Chapter Summary

Outsourcing is extensively used by both manufacturing and service industries. Many business functions are being outsourced so as to enable organizations to concentrate on their core competencies. Companies outsource for strategic, tactical and transformational reasons.

Improving business processes, gaining access to world class activities and sharing risks are some of the strategic reasons for outsourcing. Tactical reasons include controlling operating costs, and making capital funds available for other uses. Transformational reasons include bringing faster and newer solutions to customers, responding to shorter product cycles and tackling competitors.

An important step in outsourcing process is decision making. The various steps in decision making are: analyzing technological trends, assessing strategic alignment and core competencies, cost analysis and considering non cost factors. A number of other aspects in outsourcing should be considered like the involvement of suppliers, the supplier base, single vs multiple sourcing or local, national or international sourcing.

There are various forms of outsourcing like vendor managed inventory, third party logistics providers and fourth part logistics providers. Vendor managed inventory is important for improving multi firm supply chain efficiency. The vendor monitors the inventory of the buyer and periodically supplies according to the requirements of the organization.

TPL or 3PL involves the use of an outside party to take care of company's product distribution fully or partly. 4PL combines the capabilities of management consulting firms and third party logistics providers.

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