Various stages in outsourcing

Various Stages in Outsourcing

The companies have many processes that have to be integrated while manufacturing, selling, buying, customer sourcing etc.  It has to decide on what level it has to outsource so as to be a profitable organization. It has to identify analyze and maximize outsourcing opportunities. The stages for outsourcing can be different for different customers but the

The outsourcing process can be put into three phases: (these stages have been put out after going through how many companies decide to outsource

  1. Analysis Stage
  2. perations stage
  3. Implementation stage

model by author

Analysis Stage(ch.2 pg 33. Decision to outsource book: black book of outsourcing)

There are various decisions that the company has to make while thinking of outsourcing. One of the biggest questions that arises in the mind of the company is to make or buy the required service or product for the company. The company mostly uses cost benefit analysis with the help of the make or buy model to come to a conclusion whether to buy or make. The analysis stage acts as foundation stone where the company decides if it wants to outsource its function or not.

The model helps us understand whether the company wants to make or buy. It’s possible that they get into joint venture, subsidiaries or allied services could be obtained.  It depends on the cost analysis that the company decides mostly on what they want for their business. Comparative analysis of the make or buy decision is regarded the highest degree of analysis for taking such a step.

The company has then to scan all the places where they could get service providers for their company for outsourcing.

For example: If a company like S.Oliver in Germany wants to see where it can get

the cheapest labour and manufacturers for their apparel the have many South Asian countries that they can depend on as their main concern for cost is labour and that is the cheapest in the countries down Asia.

There are various political hassles that happen when the company wants to enter and obtain services from another country. The company would always like to enter a country that is politically stable and does not create any problems for them to setup and establish their roots.

The make decision will involve the company to look at the economy of the countries that they want to outsource. The economy should be stable and should not be better than the company’s own country or there is no point in outsourcing. The company would like to look at the cost and also if there are future potential to sell in the same country the products that they are making. The main infulncers in this category will be the GDP and the per capita income of the people.

Operations Stage

At the operations stage the company will identify and shortlist the service providers and negotiate the terms and conditions with them. The company will undergo this process with various service providers so that they can get the best deal out of the minimum problems.

The company will then select some service providers that the company feels would be the most profitable. The company will negotiate the terms and conditions and keep the format clear on what they are looking for and what is the way the payments would be made the staff the operational strategies, raw materials, etc

The most important thing that arises while coming to outsourcing is the communication or logistics channel that the company wishes to use for outsourcing. For e.g. S. Oliver has to ship back its apparel from India to Germany to get the apparel checked and branded if they are made as per the requirements. So for such process the cost of logistics and operations are also looked for if the it works out cheaper for the company to outsource its services to other countries.

Implementation Stage

This stage is the most important and the most difficult stage. The company have to send across managers and consultants to actually implement the business process and design how they actually want the production to go on. The company lays down the framework in place and puts the integration process right. Construction of the business is setup the communication lines are setup, the total integration of all the businesses together. This stage will determine the future flow of the business. The company can also run a simulated run so that they will come to what all flaws are there and they can improve it later.

Advantages, Benefits and Opportunities

There are various advantages of outsourcing; some of them are listed below:

Outsourcing can save money

Economies of scale can save money for the service providers can produce in large volumes because they get orders from multiple companies and the volumes are high. The pharmaceuticals industry can be used to illustrate economies of scale in relationships. Clinical trials of experimental drugs require just the right patients — healthy in most all respects but the one indication being treated, and willing to submit themselves to experimentation. It takes a significant investment of time and money to develop relationships with the hospitals and clinicians (and the triage nurses in their emergency rooms) that supply patients for the trials.

Clinical trials also require just the right medical investigators — doctors and medical researchers who are well respected in their industries. Again, it takes size to attract the best investigators. The most sought-after investigators look for organizations that can supply them with interesting and publishable research projects and with support services (such as data collection and well-managed processes) that make their jobs easier and their results more reliable.

And so a lucrative outsourcing industry has evolved to manage clinical trials of experimental drugs for pharmaceutical companies. [The author thanks Patricia Seymour, Covance Biotechnology Services, Research Triangle Park, North Carolina, for this case study.]

Outsourcing allows concentration on core business

The company has to also to concentrate on its back office activities by outsourcing such activities to other companies the company can avail benefits of concentrating on core business activities. For e.g. A company in has to look after large purchasing orders in a short span of time for its increase in volumes of production, it can outsource its purchasing process to some service provider and thus concentrate on its core business activities.

Technology advantage at lower rates

The company can avail

http://www.enotes.com/management-encyclopedia/make-buy-decisions

http://www.sourcingmag.com/content/c051011a.asp