Titan - The Outsourcing Journey

ABOUT OUTSOURCING contd...

The materials management department coordinates the outsourcing initiatives in an organization. This covers the complete cycle of material flow from the purchase and internal control of production materials to the planning and control of work-in-progress and distribution of the finished product.

Before deciding in favor of outsourcing, it is essential for organizations to identify, exploit and protect their core businesses. They should retain or insource those manufacturing functions that are critical to the product and those the company is distinctively good at making.

Thus, only those manufacturing functions should be outsourced in which the suppliers have a distinct comparative advantage, for instance in terms of greater economies of scale, a fundamentally lower cost structure or stronger performance incentives.

Most importantly, it is necessary to use outsourcing proactively through a stronger focus on internal core business areas, as a way to improve manufacturing performance by generating employee commitment at all levels (Refer Table II & III for the essentials and perils associated with outsourcing).

TABLE II
THE ESSENTIALS OF OUTSOURCING

· Understanding company goals and objectives

· Having a strategic vision and plan

· Selecting the right vendor

· Ongoing management of relationships

· Having a properly structured contract

· Communicating with affected individual/groups

· Getting senior executives'support and involvement

· Paying careful attention to personnel issues

· Having short-term financial justification

· Using external expertise

Source: www.salience.com

TABLE III
THE PERILS OF OUTSOURCING

· Loss of control

· Exposure to supplier risks and issues of quality control

· Suppliers can reap undue advantages by imitating product/technology

· Product degradation because the supplier pays less attention to it

· The change from collaborative to opportunistic behaviour of the supplier (or the buyer) over a period of time

· Difficulty in measuring the actual costs of the supplier, which are typically above baseline costs because of the experience curve

· Potential problems associated with taking the function back or substituting the supplier when the outsourcing agreement terminates

· Possibility of being tied to obsolete technology

Source: ICMR

Many leading global companies such as Volvo and HP have been reaping the benefits of outsourcing manufacturing. The practice has been particularly popular among companies in the automobile and pharmaceutical industries. Titan was one of the first Indian companies from the consumer electronics business to have opted for outsourcing its manufacturing activities as a strategic exercise.

OUTSOURCING AT TITAN

TABLE V - TITAN - KEY STATISTICS

THE FUTURE

EXHIBIT I - TITAN - PRODUCT PROFILE