Outsourcing in operations management

Outsourcing in Operations Management

Javid AliyevJavid B. AsadovHamid AliyevInara Mirza-zade

MBA2015/MGM505History of outsourcing1950s and 1960sCompanies were trying to benefit from economies of scalelead to diversification1970s and 1980s management structures of Companies enlarged and became complexCompanies lost their flexibilityBegan to consider outsourcingStarted focusing mainly on core business 1990sOutsourcing became popularCompanies mainly concern on to save costs in order to increase revenues

Outsourcing in 21st centuryImprove company focusGaining access to world class capabilitiesFreeing internal resourcesFor activities that require special expertiseSharing risks and costs

Outsourcing in practice: success & failuresBharti Airtel the 4th mobile service provider; the pioneer of outsourcing concept in the Indian region; provides certain amount of its own employees in performing the desired tasks through the platform of outsourced companies

Coca Cola outsources bottler companies

Greenleaf Automotive Recycler - outsourced Cardinal Logistics Management to improve its delivery efficiencies. The ratio of re-deliveries of customers was reduced from 15% to 3%.

Toyota Motors relies on suppliers for more than 70% of the value of its vehicles. outsourced certain parts for assembling its automobile and since 2009, the company had recalled nearly 8.5 million cars due to low quality products.

Sony Corporation because of the supplier was able to ship only half the PlayStation 2 consoles it wanted in September 2000.

Top countries for outsourcing businessIndia - holds the first place among the most outsourced staff in the world. IBMs Indian employees comprise 20% of the total number of employees. Apple, HP, Dell use Indian call-centers.

China - the largest population in the world serves manufacturing and retail companies throughout the world.

Malaysia the first country in outsourcing Business Process and IT consulting services.

Advantages Better use of technologiesFocus on core competencesImproving customer serviceBetter use of skilled expertiseIncrease in productivity and competencesBetter managementBetter use of spaceTime zones differencesDistribution of risksBetter use of capitalWorld class solutionsDisadvantagesQuality problemsLack of customer focusIncreased costsTied to the risks of the other companyLoss of in-house talentsLack of security and confidentialityBad publicityLinguistic barriersNo timely deliveryIncrease of conflictsLack of commitmentSpectrum of outsourcingDeloitte surveyed 140 companies in 30 different countries. 69% of participants were headquartered in North America and Europe.

Nearly 40% of respondents cited a lack of innovation and underqualified resourcing as reason for complications with service providers. Nearly 70% of respondents choose to continue outsourcing. From them, 62% are satisfied, 32% neutral and 6% are dissatisfied with results. Recommendations for decision-makersDefine your opportunity costs/core and non-core activities/corporate culture in your business.Analyze the market Compare costs of outsourcing to the costs of internal production. Does it help to differentiate your business and provide you a competitive advantage?Evaluate your business risks (partners, financial stability, innovation and technology) Will you be able to control the process? Are you able to establish direct communication with the supplier? Do you have alternatives in case the idea fails?

ReferencesA. Kirk. IT Outsourcing: Concepts, Methodologies, Tools, and Applications. London: IGI Global/2010Harps, L. (2003). Don't Even Think About Outsourcing Until You Read These Success Stories.R. McIvor, Global Services Outsourcing. London: Cambridge University Press/2010 Booz, Allen, Hamilton Profits or Perils? The Bottom line of outsourcing Deloittes 2014 Global Outsourcing and Insourcing Survey.Global outsourcing and offshoring- Farok J.Contractor, Vikas Kumar, Sumit K.Kundu, Torben Pedersen/2012 Global outsourcing strategies: an international reference on effective outsourcing relationships/ Peter Barrar and Roxane Gervais/2006 http://fortune.com/2014/11/25/coca-cola-capitalism/http://scm.ncsu.edu/scm-articles/article/a-brief-history-of-outsourcinghttp://www.selfgrowth.com/articles/a-brief-history-of-outsourcinghttps://www.flatworldsolutions.com/articles/advantages-disadvantages-outsourcing.phphttp://www.referenceforbusiness.com/small/Op-Qu/Outsourcing.htmlhttp://www.mmmtechlaw.com/top-ten-strategic-recommendations-for-negotiating-an-outsourcing-transaction/http://www.ranker.com/list/the-top-ten-countries-for-outsourcing-business/mcorn310