“Why Strategies Alliance and Partnership of Logistics is important in modern business. What are the analytical tools and techniques a company can apply to better manage the success of Alliance and Partnerships.”
CONTENT PAGES
Introduction 2
Definition of Outsourcing 2
What changes have occurred so that outsourcing is now 3
embraced as an important restructuring tool
Current Trends That Favor Network Partnership 3 ~ 4
Top Five strategic Reasons to Outsourcing 4 ~ 5
Advantages of Outsourcing Top Five Tactical Reasons for 6
Outsourcing
Benefits of Outsourcing 7
Disadvantages of Outsourcing 7
The Seven Steps to Successful Outsourcing 8
How can we expect to reduce costs by outsourcing if the
provider must perform the same activities and earn a profit? 9
Conclusion 10
Reference 11
Introduction
In a fast-evolving market where new technologies are emerging, the knowledge and skills of individuals are very limited. The technologies themselves may be proprietary and not available on the open market. If organizations can attract the knowledge and skills base or technologies, they have an advantage. Not every organization will be able to attract this knowledge and skills base. In fact, some organizations couldn’t attract these individuals at even a healthy compensation premium, due to an unattractive reputation, physical location, lines of reporting, and so on. What do these organizations do to stay competitive? Similarly, other organizations may be able to acquire the individuals but not the technology. What do these companies do to stay competitive? Outsourcing slows these organizations to obtain the knowledge skills base or the technology. The provider can and has attracted the base because the provider’s current and future core competencies match that of the knowledge skills base. The provider is attractive as a long-term employer because the provider can offer a career track and higher future compensation for successful performance. The provider has the technology and is willing to effectively rent it long term, at a price, if it can deliver the service.
2. Definition of Outsourcing
Outsourcing is the act of transferring some of a company’s recurring internal activities and decision rights to outside providers as set forth in a contract. Because the activities are recurring and a contract is used, outsourcing goes beyond the use of consultants. As a matter of practice, not only are the activities transferred, but the factors of production and decision rights often are, too. Factors of production are the resources that make the activities occur and include people, facilities, equipment, technology, and other assets. Decisions rights are the responsibilities for making decisions over certain elements of the activities transferred.
3. What changes have occurred so that outsourcing is now embraced as an important restructuring tool?
a) Large organizational size is no longer a competitive advantage.
b) Small, agile niche competitors can now change industries and cost structures overnight.
c) Competitive pressures are more severe in a global economy.
d) Product and service cycle times have reduced dramatically, and time based competition demands quicker response.
e) Investors and analysts demand a focused management that delivers.
f) Bottom line performance, growth, and size are no longer predictors of future profits.
g) Significant operating and financial performance improvements are critical to success, and long- term survival.
h) Supplies of technical specialists are reasonably plentiful, thus employing them internally is unnecessary to their availability.
i) Cutting edge technology and knowledge are now recognized as competitive weapons but are expensive to acquire and successful results are often elusive when implemented internally.
4. Current Trends That Favor Network Partnership
Trend #1: Advancements in Information Technology
Firms have always been better than markets at coordinating on complex tasks. However, recent advances in a computing and telecommunications have dramatically across costs and increased the speed and quality of communications across the firm boundaries. These technologies have become so powerful and inexpensive that they allow legally distinct firms to collaborate effectively on increasing complex tasks. E-mail offers the ability to send files and documents around the world within minutes at virtually no cost. A variety of technologies based on command standards permit the instantaneous sharing of information allow for coordination of highly complex tasks.
Trend #2 : Increasing Knowledge and Product Complexity
A study by strategy consultant & Company found that the percentage of “knowledge workers” in the United States has increased dramatically over the past few decades. The study found that in 1930 only 30 percent of U.S workers were knowledge workers, whereas by 1994 that had more that doubled to 62 percent. Due to this growth in knowledge and knowledge workers, the research and development investments required by individual firms to stay at the cutting edge of knowledge frontier have increased. Consequently, firms are increasingly focusing their resources on a narrow sets of specialized activities or core competencies.
4.1. Top Five Strategic Reasons to Outsourcing
a) Improve business focus: Outsourcing lets the company focus on broader issues while having operational details assumed by an outside expert. For many companies the single most compelling reasons for outsourcing is that several of the ‘how’ type issues are siphoning off huge amounts of management’s resources and attention.
b) Access to world class capabilities: By the very nature of their specialization, outsourcing providers bring extensive, world-wide, world-class resources to meeting the needs of their customers. According to , vice-president re-engineering at Amtrak, partnering with an organization with world class capabilities can offer: access to new technology, tools and technologies that the organization may not currently possess; better career opportunities for personnel who transfer to the outsourcing provider; more structured methodologies, procedures and documentation; competitive advantage through expanded skills.
c) Accelerated re-engineering benefits: Outsourcing is often a by-product of another powerful management tool-business process re-engineering (BPR). It allows an organization to realize immediately the anticipated benefits of re-engineering by having an outside organization-one that is already re-engineered to world-class standards-take over the process.
d) Share risks: There are tremendous risks associated with the investments an organization makes. When companies outsource they become more flexible, more dynamic and better able to adapt to changing opportunities.
e) Free resources for other purposes: Every organization has limits on the resources available. Outsourcing permits an organization to redirect its resources from non-core activities towards activities, which have the greater return in serving the customer.
5. Advantages of Outsourcing Top Four Tactical Reasons for Outsourcing
a) Reduce or control operating costs: By far the single most important reason for outsourcing is to reduce or control operating costs. Access to the outside provider’s lower cost structure is one of the most compelling short-term benefits.
b) Make capital funds available: Outsourcing reduces the need to invest capital funds in non-core business functions. This makes more capital funds more available for core areas. Outsourcing can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non-core areas.
c) Cash infusion: Outsourcing can involve the transfer of assets from the customer to the provider. Equipment, facilities, vehicles and licenses used in the current operations all have a valve and are, in effect, sold to the provider as part of the transaction, resulting in cash payment.
d) Resources not available internally: Companies outsource because they do not access to the required resources within. For example, if an organization is expanding its operation, especially into a new geographic area, outsourcing is a viable and important alternative to building the needed capability from the ground up.
6. Benefits of Outsourcing
If outsourcing is managed well, and the reasons for getting into the process are right, then it can benefit not just the bottom-line but also all the stakeholders.
a) Instead of facing redundancy, employees can be transferred to more useful work, or retrained with the new outsourced supplier.
b) Existing suppliers can increase their overall business involvement.
c) Shareholders can expect greater windfalls in dividends.
d) Long-term employment and a real future can be made a lot more secure by concentrating on the things the business does well.
e) Looking for opportunity instead of solving problems can open up new markets and new opportunities for the people in the business.
7. Disadvantages of Outsourcing
a) Loss of control and expertise: Non-core competencies take up time, energy and work space, all of which cost money. Worse yet, management losses sight of what is really important-satisfying customers by exploiting the organization’s core competencies.
b) Policy and procedure: Organizations need to modify existing policies and procedures or develop new policies and procedures to coordinate with service providers. Quality control policies and problem resolution procedures need to be in place to address any situation arising regards to quality of services offered by the service providers.
c) Staff morale: Staff morale issues play a very important role in outsourcing arrangement. Theses issues can range from layoffs to relocation or re-training. Companies should address these issues effectively using change management techniques. As mentioned earlier training and education of employees to help them adjust to new technologies and new environment can address these issues.
8. The Seven Steps to Successful Outsourcing
I. Planning initiatives: Assess risks. Announce initiative. Form project team. Engage advisers. Train the team. Acquire other resources. Address issues: Resource management, Information management, Project management. Set objectives.
II. Exploring strategic implications: Understand organization’s vision, core competencies, Structure, Transformation tools, Valve chain, Strategies. Determine Decisions rights, contract length, termination date aligns initiative.
III. Analyzing costs and performance: Measure activity costs. Project future costs. Measuring performance: – existing and future, cost of poor performance, benchmark costs/performance. Determine specific risks, asset valves. “Make” total costs, pricing models, final targets.
IV. Selecting vendors: Set qualifications. Set evaluation criteria. Identify providers, screen providers, drafts RFP. Evaluate proposals: Qualifications, costs, perform due diligence. Determine. “Buy” total costs, short-list providers, finalist provider, and review with senior management.
V. Negotiating terms: Plan negotiations. Address. High-level issues, deal breakers. Prepare term sheets, negotiate contract: scope, performance standards, pricing, schedules, terms and conditions. Announce relationships.
VI. Transitioning resources: Adjust team roles. Compare/merge transition plans. Address transition issues: communications, human resources, and other production factors. Meet with employees: Organization, provider. Make offers/termination. Provide counseling. Physically move.
VII. Managing relationship: Adjust management styles. Set up oversight council. Communicate. Define and design: Meeting agendas, meeting schedule, performance reports. Solve problems. Build the relationship.
9. How can we expect to reduce costs by outsourcing if the provider must perform the same activities and earn a profit?
If the provider performed the same activities in the same way that the organization did, the provider could not reduce costs, much less make a profit. But the provider will apply a superior package of resources, such as on-point core competencies, cutting edge technologies, state of the art equipment, experienced management, and well-trained, motivated personnel. For these reasons, the provider performs better, doing things, faster and more efficiently with fewer resources. The providers also have very different cost structures from the internal unit. Because, for example, the provider has large scale, it may have greater purchasing power and obtain discounts not available to the internal unit. It also has the ability to spread overhead over more activity units. (Other clients’ work, for example), so it is per unit head costs are lower. When we think of the internal unit’s employee costs, we recognize that these costs include salaries and benefits (taxes, insurance, retirement, parking, cafeteria, and so on).
What may not be recognized is that there are no significant overhead costs associated with employees, such as: – work space, including telephone and computer, supervision (the time spent by supervisors on activities related to an employee or employee group, including direct supervision, monitoring results, periodic evaluations, meetings), training, including any travel-related expense. Technology used by the employee, top management time spent reviewing such things as the unit’s annual business plans, budgets, and issues.
When these overhead costs are added in, we can see that fully loaded employee costs can be 100 percent or more of the employees’ salary. Sending it to providers who can reduce it will result in savings. Outsourcing allows us reduce our costs because the provider operates different (often very differently) and achieves overall lower costs.
10. Conclusion
The logic of supply chain formation being irrefutable, competitive advantage will go to alliance, which put together the best possible combination of core competencies followed by scientifically determined positioning of resources and artful handling of the synergy resulting from their collective effort. However, strategies alliance and partnership require time, commitment of resources and extensive information sharing to developed a strong relationships with each members to lead efficient and effective within the enterprise . Once this occurs, the enterprise will be a powerful weapon in the battle for competitive advantage.
Credit:ivythesis.typepad.com
0 comments:
Post a Comment