Operations and Supply Chain Management The Core

GLOBAL SOURCING AND PROCUREMENT chapter 13 435
To be responsive, companies use build-to-order and mass customization processes as
a means to meet the specific requirements of customers.
∙ Agile supply chains. These are supply chains that utilize strategies aimed at being
responsive and flexible to customer needs, while the risks of supply shortages or disruptions
are hedged by pooling inventory and other capacity resources. These supply
chains essentially have strategies in place that combine the strengths of “hedged”
and “responsive” supply chains. They are agile because they have the ability to be
responsive to the changing, diverse, and unpredictable demands of customers on the
front end, while minimizing the back-end risks of supply disruptions.
Demand and supply uncertainty is a good framework for understanding supply chain
strategy. Innovative products with unpredictable demand and an evolving supply process
face a major challenge. Because of shorter and shorter product life cycles, the pressure
for dynamically adjusting and adopting a company’s supply chain strategy is great. In the
following section, we explore the concepts of outsourcing, green sourcing, and total cost
of ownership. These are important tools for coping with demand and supply uncertainty.
OUTSOURCING
Outsourcing is the act of moving some of a firm’s internal activities and decision responsibility
to outside providers. The terms of the agreement are established in a contract.
Outsourcing goes beyond the more common purchasing and consulting contracts because not
only are the activities transferred, but also resources that make the activities occur, including
people, facilities, equipment, technology, and other assets. The responsibilities for making
decisions over certain elements of the activities are transferred as well. Taking complete
responsibility for this is a specialty of contract manufacturers such as Flextronics.
The reasons why a company decides to outsource can vary greatly. Exhibit 13.4 lists
examples of reasons to outsource and the accompanying benefits. Outsourcing allows a
LO13–2 Explain
why companies
outsource processes.
Outsourcing
Moving some
of a firm’s
internal activities
and decision
responsibility to
outside providers.
Reasons to Outsource and the Resulting Benefits
exhibit 13.4
FINANCIALLY DRIVEN REASONS
Improve return on assets by reducing inventory and selling unnecessary assets.
Generate cash by selling low-return entities.
Gain access to new markets, particularly in developing countries.
Reduce costs through a lower cost structure.
Turn fixed costs into variable costs.
IMPROVEMENT-DRIVEN REASONS
Improve quality and productivity.
Shorten cycle time.
Obtain expertise, skills, and technologies that are not otherwise available.
Improve risk management.
Improve credibility and image by associating with superior providers.
ORGANIZATIONALLY DRIVEN REASONS
Improve effectiveness by focusing on what the firm does best.
Increase flexibility to meet changing demand for products and services.
Increase product and service value by improving response to customer needs.