Strategic Supply Chain Management - Supply Chain Online

16 Strategic Supply Chain Management
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Technology expertise—Outsourcing partners may have mastered
a product or process technology that would require a sizable
investment to develop internally.
If your product or
process technology
is a source of
differentiation, don’t
outsource that
aspect of your
operations.
Despite these benefits, outsourcing isn’t always the right decision.
Before turning to external providers, consider four things: your source of
differentiation, your operating scale, your power position, and the uniqueness
of your operations.
First, know how your company differentiates itself. What gives you a
competitive edge If your product or process technology is a source of differentiation,
don’t outsource that aspect of your operations. Consider the
case of one of the world’s leading brands in watches. The Manufacture des
Montres Rolex SA, known around the world for its Rolex brand, not only
produces the components for its watches, but also produces machines,
tools, and supplies for the manufacture of movements and other products. 2
Manufacturing is an integral part of ensuring the high standards of quality
that set Rolex apart as a premium watchmaker.
For many companies, however, manufacturing
is not strategic. Cisco, Compaq,
and IBM outsource most of their production
to contract electronics manufacturers such
as Flextronics, Solectron, and Celestica.
And most industries use third-party logistics
providers for transportation, customs, warehousing,
and other value-added services,
such as final packaging, configuration testing,
software loading, and site installation.
Next, compare the scale of your internal
operations against your requirements. If your
operations are at or near full capacity utilization—with
no plans to boost production—
you’re unlikely to gain any cost benefit from outsourcing. For smaller
players that want to expand, however, working with a partner can be the best
solution. Outsourcing manufacturing operations to lower fixed and total
costs is common practice across many industries. Top performers have set
up these practices to yield other benefits as well.
Tellabs, a U.S. manufacturer of communications equipment, provides
an example. This company’s approach to external manufacturing
provides benefits to strategies in procurement, design, repair operations,
and market penetration, in addition to reducing manufactured cost. Through
external agreements and integration of internal practice disciplines, Tellabs