Research Articles Base: Outsourcing Samples

Make Or Buy Decisions For Orbik Electronics Limited

Make or Buy Decisions for Orbik   Brief overview of Orbik Established in 1982, Orbik Electronics Limited has always been in the forefront of innovative design of emergency lighting equipment. The four acre purpose built facility at Aldridge in the West Midlands is registered to BSI for its ISO9001/2000 quality system. Today, Orbik has more than 300 products approved by the BSI, indicating the company’s continued compliance on quality, safety and performance standards. Further, Orbik invests heavily in automatic assembly processes which allow Orbik to offer world class standard of service to all customers. Having said this, Orbik has become the first choice supplier to many leading international lighting companies for their specific lighting needs such as emergency control gear, emergency luminaries, central battery and static inverter systems. Product categories unique to Orbik are fire range and lighting range. In the former, conventional fire alarms, two-wire conventional fire alarms, specialist conventional fire alarms, analogue addressable fire alarms and call systems are on the product list. On the latter, products include luminaries, legends and photometric data, self contained emergency gear, low voltage emergency lighting, addressable emergency lighting systems and electronically controlled emergency lighting. Moreover, Orbik is backed by Relux which made possible the offering of the most technically advanced and user friendly lighting design software. Purchasing division of Orbik Considerably, there is a unit that deals with the necessary procurement activities to facilitate production. One of the key responsibilities of Orbik’s purchasing department is to ensure that there will be no shortages. Such responsibility is carried out by properly coordinating acquisition of goods and services and by encouraging open and competitive bidding on all goods and services. When purchasing equipment, materials and supplies as well as services, there is the necessity to ensure that the right quality, in the right quantity at the right price and from the right source is evident. Banning (1997, p. 1) also noted that the purchasing department takes a new function today wherein the emphasis is on long-term business strategy and less emphasis on the more mechanical tasks of price comparisons and order placement. This premise is particularly true since the modern purchasing department is more often involved in the process of locating new sources, marketing and research and development. Having said this, the purchasing division of Orbik, through the make or buy review team, will determine the criticality of outsourcing versus internal manufacturing. As a member of the review team, I was tasked to determine the importance of make or buy decisions for Orbik. A purchasing analysis will be conducted through determining the various groups that purchasing must involve with as well as commercial networking and business relationships available for Orbik, and recommend course of actions based on the analysis. Context diagram Required for Orbik is to determine whether to outsource or internally manufacture a motor assembly. This is critical considering that it will perform and monitor a core function for a new product line.               Make or buy decisions for Orbik Orbik has the choice of outsourcing the motor assembly or manufacturing it. There are two apparent concepts: outsourcing versus insourcing. Outsourcing is the process whereby internal functions are contracted out to external providers (Domberger, 1998, p. 12). Insourcing is the direct opposite of outsourcing which means the delegation of operations or jobs from production within a business to an internal unit which specializes in that operation. Amiti and Wei (2004) claim that insourcing is a business decision that aims to maintain control of critical production or competencies. Based on these definitions, both outsourcing and insourcing could impose various benefits and risks to Orbik and its operation. As it is in the operational level, Orbik, through the make or buy review team, has to weigh these benefits and detriments. Basically, there are cost considerations. If outsourcing would be less expensive or more expensive but with more returns, then outsourcing will be a choice. This is also true considering that all the costs will be vested on Orbik when the motor assembly is insourced such as direct labor, overhead, managerial and materials among others. To compare, outsourcing will cost Orbik in terms of purchase price of motor assembly, transportation, receiving and inspection and follow-on costs on quality and service. Nonetheless, outsourcing could address the weakness of Orbik and that is lack of expertise and hence could exploit suppliers’ research and specialized know-how. Likewise, outsourcing addresses another dilemma of limited production facilities and insufficient capacity. There are also considerations, further, that Orbik could relay to suppliers’ such as procurement and inventory and managerial control.  Orbik also has the freedom to multi-outsource while also diligently choosing from which to outsource from. We should take note, however, that what we are going to outsource is an essential process to Orbiks’s strategy and that is motor assembly. Commonly outsourced are those processes that are not critical to the operations of the company. This could address, nonetheless, by tight, transparent contracts between Orbik and the supplier(s). Thirdly, deciding to outsource take into full consideration of the many risks that accompanies its benefits. Steven Bragg maintained that “companies will be more likely to outsource a function if there are multiple reasons for doing so” (2006). Such multiple reasons are as follows: a) acquire new skills and better management, b) enhance controls, c) focus on strategy and core functions, d) avoid major investments, e) assist a fast-growth situation, f) handle overflow situations and g) improve flexibility and ratio. Skills inadequacy results in minimal improvements. A way to overcome such problem is transferring of specific functions to highly-competent, well-trained and experienced specialists. Further, a viable option to eliminate poor management in exchange of quality management is through outsourcing of functional areas into suppliers. Through this process, a relative degree of pressure will also be alleviated. The result would be sufficient control over the operation. The tactical part of function-distribution would enable the management to focus on strategy-related issues like market positioning and product development in return while also avoiding heavy investments. Moreover, acquiring increased market share requires a support mechanism for function overloads. Converting fixed costs into variable costs as well as driving the performance ratios improved the profitability per person and the business as a whole (pp. 2-4). Finally, while there are many benefits for outsourcing, there are also risks including: a) future changes in supplier circumstances, b) perceived risk lower than actual, c) local responsibility, d) supplier failure, e) loss of confidential information and f) loss of jobs. Changes in the operations of suppliers (e.g. financial difficulties, technology requirements of services) might alter the outsourcing relationship. Nonetheless, the risk can be diminished through inclusion of termination clause in contracts. The bandwagon effects of outsourcing are inclined to success to stories whereas, in reality, outsourcing is problematic and conflict-laden. Failures of the suppliers, in effect, are equated to failure of the company are serious risks, not to mention, confidential information sent by the businesses adds up to the constraints since suppliers are given the right and control over crucial informations. Outsourcing a function also means abolishing specific internal jobs while also putting the outsourced workers jobs at risk if the outsourcing did not work (pp. 8-10). On the other hand, insourcing could benefit Orbik of productive use of the facilities and the manpower. Aside from having a direct control over the production as well as lead time, transportation, and warehousing costs, Orbik will also have the direct control of the quality of the produce. When Orbik decides to change the process for a better lean manufacturing process, it would be easy for the company to integrate plant operations. Overall, however, insourcing has inherent technical and operational issues that may exacerbate costs issues.    Importance of make or buy decisions The question now is: why is it important for Orbik to determine make or buy decisions? The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part—or significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand. Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision. Of course, firms should make items that reinforce or are in-line with their core competencies. These are areas in which the firm is strongest and which give the firm a competitive advantage. The increased existence of firms that utilize the concept of lean manufacturing has prompted an increase in outsourcing. Manufacturers are tending to purchase subassemblies rather than piece parts, and are outsourcing activities ranging from logistics to administrative services. In their 2003 book World Class Supply Management, David Burt, Donald Dobler, and Stephen Starling present a rule of thumb for out-sourcing. It prescribes that a firm outsource all items that do not fit one of the following three categories: (1) the item is critical to the success of the product, including customer perception of important product attributes; (2) the item requires specialized design and manufacturing skills or equipment, and the number of capable and reliable suppliers is extremely limited; and (3) the item fits well within the firm’s core competencies, or within those the firm must develop to fulfill future plans. Items that fit under one of these three categories are considered strategic in nature and should be produced internally if at all possible. Make-or-buy decisions also occur at the operational level. Analysis in separate texts by Burt, Dobler, and Starling, as well as Joel Wisner, G. Keong Leong, and Keah-Choon Tan, suggest these considerations that favor making a part in-house: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Cost 	considerations (less expensive to make the part)</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Desire to integrate plant operations</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Productive use of excess plant capacity to help absorb fixed overhead (using 	existing idle capacity)</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Need 	to exert direct control over production and/or quality</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Better quality control</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Design secrecy is required to protect proprietary technology</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Unreliable suppliers</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	No 	competent suppliers</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Desire to maintain a stable workforce (in periods of declining sales)</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Quantity too small to interest a supplier</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Control of lead time, transportation, and warehousing costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Greater assurance of continual supply</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Provision of a second source</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Political, social or environmental reasons (union pressure)</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Emotion (e.g., pride)</li> </ul> Factors that may influence firms to buy a part externally include: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Lack 	of expertise</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Suppliers’ research and specialized know-how exceeds that of the buyer</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	cost 	considerations (less expensive to buy the item)</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Small-volume requirements</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Limited production facilities or insufficient capacity</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Desire to maintain a multiple-source policy</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Indirect managerial control considerations</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Procurement and inventory considerations</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Brand 	preference</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Item 	not essential to the firm’s strategy</li> </ul> The two most important factors to consider in a make-or-buy decision are cost and the availability of production capacity. Burt, Dobler, and Starling warn that “no other factor is subject to more varied interpretation and to greater misunderstanding” Cost considerations should include all relevant costs and be long-term in nature. Obviously, the buying firm will compare production and purchase costs. Burt, Dobler, and Starling provide the major elements included in this comparison. Elements of the “make” analysis include: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental inventory-carrying costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Direct labor costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental factory overhead costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Delivered purchased material costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental managerial costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Any 	follow-on costs stemming from quality and related problems</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental purchasing costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental capital costs</li> </ul> Cost considerations for the “buy” analysis include: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Purchase price of the part</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Transportation costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Receiving and inspection costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	 	Incremental purchasing costs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Any 	follow-on costs related to quality or service</li> </ul> One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part’s manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part. While cost is seldom the only criterion used in a make-or-buy decision, simple break-even analysis can be an effective way to quickly surmise the cost implications within a decision. Suppose that a firm can purchase equipment for in-house use for 0,000 and produce the needed parts for each. Alternatively, a supplier could produce and ship the part for each. Ignoring the cost of negotiating a contract with the supplier, the simple break-even point could easily be computed: 0,000 + Q = Q 0,000 = Q − Q 0,000 = Q 50,000 = Q Therefore, it would be more cost effective for a firm to buy the part if demand is less than 50,000 units, and make the part if demand exceeds 50,000 units. However, if the firm had enough idle capacity to produce the parts, the fixed cost of 0,000 would not be incurred (meaning it is not an incremental cost), making the prospect of making the part too cost efficient to ignore. Stanley Gardiner and John Blackstone’s 1991 paper in the International Journal of Purchasing and Materials Management presented the contribution-per-constraint-minute (CPCM) method of make-or-buy analysis, which makes the decision based on the theory of constraints. They also used this approach to determine the maximum permissible component price (MPCP) that a buyer should pay when outsourcing. In 2005 Jaydeep Balakrishnan and Chun Hung Cheng noted that Gardiner and Blackstone’s method did not guarantee a best solution for a complicated make-or-buy problem. Therefore, they offer an updated, enhanced approach using spreadsheets with built-in liner programming (LP) capability to provide “what if” analyses to encourage efforts toward finding an optimal solution. Firms have started to realize the importance of the make-or-buy decision to overall manufacturing strategy and the implication it can have for employment levels, asset levels, and core competencies. In response to this, some firms have adopted total cost of ownership (TCO) procedures for incorporating non-price considerations into the make-or-buy decision. References Amiti, M. & Wei, S. J. (2004). Fear of Service Outsourcing: Is it Justified? International Monetary Fund. Banning, K. B. (1997). Opportunities in Purchasing Career, McGraw-Hill Professional. Domberger, S. (1998). The Contracting Organization: A Strategic Guide to Outsourcing. Oxford University Press.     Credit:ivythesis.typepad.com

Make Or Buy Decisions For Orbik Electronics Limited

Make or Buy Decisions for Orbik Brief overview of Orbik Established in 1982, Orbik Electronics Limited has always been in the foref...

Sample Business Analysis Study on The Performance and Effectiveness of Job Outsourcing

OBJECTIVES As a person with knowledge of outsourcing, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this issue and at times fail to understand the reasons or logic behind certain strategic implementations imposed on it. By delving into this project paper, the author intends to have better insights into how outsourcing in relation to jobs overseas is thought up, formulated and then imparted down. The author hopes to have an in-depth understanding as to how the process of outsourcing enables US companies and organizations to compete effectively and profitably in this era of internationalization where competition is extremely intense. In order to reinforce the learning objectives, two key focal issues were focussed upon, i.e. innovation and diversity. Innovation was discussed with regards to outsourcing where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.       EXECUTIVE BRIEF This essay utilized the status of the US job market and its companies as the model organizations to review their present stands regarding the outsourcing of jobs overseas and how they dealt with critical situations. From the analysis, key trends in the outsourcing processes were then identified, how they worked and their effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess these outsourcing strategies of most outsourcing companies with regard to their suitability to critical situations, during which the internal capabilities of these outsourcing strategies in relation to the strategy being followed by most outsourcing companies were determined also. An overall analysis of the performance and effectiveness of outsourcing of jobs overseas was also conducted to assess and compare the capabilities of these strategies with those of others. Gaps in the outsourcing of jobs overseas were then identified. Finally, several choices of strategies to improve the outsourcing of jobs overseas as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.       INTRODUCTION Nowadays businesses are cutting back on operations to focus on the core business, reorganizing their business norms through downsizing, restructuring or reengineering, as well as contracting out various functions and tasks. Commonly known as outsourcing, this particular business trend had started in the manufacturing business in the early 1980s, mainly as a means of cutting back staff and savings on wages. Krajewski and Ritzman (2002) define outsourcing as the allotment of work to suppliers and distributors to provide needed services and materials to perform those processes that the organizations do not perform themselves. To put it simply, outsourcing means going outside your organization to get a job done. While such a definition is easy to comprehend, knowing when and how to outsource is much more complex. Modern businesses must consider several factors when thinking about outsourcing. Not only do they have to consider functions that are traditionally outsourced but also the rapid evolution of information technology (IT) requirements (Hormozi, Hostetler, & Middleton, 2003).             Often a task is considered for outsourcing if the work performed by a consultant would require hiring additional staff if it were done in-house (Ryans, 1996). Moreover, work-handled by a former employee who may perform a specific service is also considered as outsourcing. The term outsourcing may be new to the business; however, the practice of it is not (Hormozi, Hostetler, & Middleton, 2003). Historically, numerous businesses have enlisted the help of outside experts to assist with tasks too cumbersome to complete in-house. Legal and financial experts, along with countless other specialists, have long been called on to assist businesses in areas outside their core competencies. Outsourcing (Jones, 2000) has been a common term for approximately 20 years.                         There are many reasons for outsourcing in a company or an organization. The decision of businesses to outsource is mainly based on cost, set-up time and the availability of the expertise. The most common reasons for outsourcing are the needs for expertise, that is due to lack of learning curve and re-creating; manpower, for having not enough staff; time requirements, because of the limited time available to accomplish the job; needed for economics, owing an overall cost savings; shifting of responsibility as for deniability; and removing of stumbling blocks in keeping the work for flowing.             Outsourcing, according to current literature, is a business trend that will most likely continue in the coming years (Ryans, 1996). At present, there are two types of outsourced services of which include technology and business processes. Each can be inert partial to the subsequent areas. The first type of outsourcing is the technology services. This type covers the electronic commerce, infrastructure networks, software applications, telecommunications and website development and hosting. The second type of outsourcing is the business process outsourcing. Under this type of outsourcing are customer contacts (customer relations management), equipment, finance/accounting, human resources, logistics, procurement/supply chain management and security.   Advantages of Outsourcing             Outsourcing has many benefits (Ryans, 1996). These includes freeing up management resources, sharing costs, creating integrated networks, building new organization structures, training staff, and interfacing with other information systems. It offers a company functional specialization and flexibility. For years, companies have been outsourcing payroll and accounting functions but only recently have they discovered the benefits of relinquishing control over their IT departments.             Specifically, Yost and Harmon (2002) identify Enrol Corporation’s 1989 0 million contract as the first important IT outsourcing arrangement, while Benamati and Rajkumar (2002) credit Kodak similarly, noting its 1989 landmark move to outsource IT needs. To keep pace with the information technology advances of the last decade, many large organizations have chosen to outsource the departments that handle their information systems and network services. Companies embracing IT outsourcing have benefited from the expertise and technological capabilities of their vendors, but they have had to deal with decreased control as well. For example, four case studies presented by Peled (2000) demonstrate the highly influential role IT vendors can play in the development of public projects. Rather than merely working to meet the needs of the bureaucrats employing them, these vendors incorporated elements of their own political agendas into their work.     Disadvantages of Outsourcing Still, some of the drawbacks of outsourcing include difficulties in maintaining confidentiality, retaining control and confronting transition problems. At present, issues on the outsourcing of IT professionals have been raised. Disadvantages identified in outsourcing have significantly affected other nations, that effort and ideas are being integrated together so as to prevent outsourcing. In this paper, emphasis on the significance of self-leadership in the prevention of outsourcing is highlighted. The discussion evolves mainly on the assessment of collaboration and leadership in increasing productivity among individuals, their efficacy and various requirements. Outsourcing: Purchasing and Buying  Buyers and purchasing agents in the outsourcing process are tasked to evaluate suppliers on the basis of price, quality and service support. They review catalogs as well as industry and company publications in order to help them in their search for the right suppliers. Fortunately for them, a majority of this information can be easily accessed in the Internet. They also do some researching about the reputation and background of the suppliers and may also do some advertisements regarding the foreseen purchase actions in the hope of soliciting bids. At meetings and conferences, they perform the examination of products and services, the evaluation of the productive and distributive capabilities of suppliers, and the discussion of business considerations that have the possibility of influencing the purchasing decision. As soon as all valuable information about the suppliers is gathered, the placement of orders and contracts are started to be awarded to those suppliers who are able to meet the needs of the purchasers. The typical contracts range for several years and may even have the stipulations of the range of prices, which would allow the purchasers to reorder whenever necessary. In some companies, however, there is a clear distinction between the work of a buyer and that of a purchasing manager. Purchasing agents and buyers focus mainly on the daily purchasing tasks. They specialize in wines. Purchasing agents perform the tracking of the conditions of the markets, trends in prices, as well as the future of the wine markets. Purchasing managers, on the other hand, are in charge of the more complex and critical wine purchases and handles a team of purchasing agents. Outsourcing: Production Planning Production planning is a necessary function within the outsourcing process. In manufacturing companies this process is often very difficult because of the fast rate of change and the occurrences of unplanned events. Most outsourcing companies use several methodologies depending on the rate of demand of the customer and the price of the product / service. Nevertheless, the objectives of outsourcing companies for every transaction do not change: efficiency and effectiveness. Production planning is being implemented by most outsourcing companies in order for their activities and resources to be coordinated over time. These enable the outsourcing companies to achieve their goals with minimal resource utilization. Production planning also enables outsourcing companies to monitor the progress of their plans at regular intervals and maintain their control over operations. Production planning within outsourcing companies involves four elements: scheduling, labor planning, equipment planning, and cost planning. <ul type="disc" style="margin-bottom: 0in"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Scheduling involves the specification of 	the beginning, the length or the duration, and end of the planned 	activities. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Labor planning involves allocating the 	necessary personnel and delegation of responsibilities and resources 	</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Equipment planning involves identifying the 	types and needs in terms of equipments. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Cost planning involves determining the 	costs and the possibility of their occurrence. </li> </ul> Outsourcing: Supply Chain Management Supply Chain Management in most outsourcing companies involves working across multiple enterprises in an effort to limit the supply chain time of delivering products and services to the consumers.  The uncertainty of demands in supply chains within outsourcing companies is easily solved through the implementation of faster response times. The product supply chain of most outsourcing companies has the luxury of longer lead times in terms of batch production of products in order to meet the demands. Most supply chains of outsourcing companies are moving in a position to support faster changes of demand by the consumers (Chopra 2001, p. 45). Because of the agile supply chain of most outsourcing companies, they are able to enjoy so many advantages. As mentioned above, the supply chain analysis tends to shorten the supply chain itself. Also, this will significantly reduce company inventories. Forecasting, scheduling and planning, on the other hand, will significantly improve. Critical Outsourcing Improvement Factors For outsourcing companies to become a viable player in the industry, the following improvement factors are critical: ·        Financial Stability Financial stability is crucial especially in the pursuit of outsourcing of overseas jobs and other development activities. In any job market, it is important to remain updated with the latest developments to be able to stay competitive in the market. ·        Human Resource Performance The outsourcing of the best human resources overseas comes as a result of well-funded outsourcing management and development activities. The strong performance of outsourced personnel in the overseas market could also be linked to their effectiveness. However, outsourcing companies have to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market. ·        Outsourcing Strategy and Distribution High job market awareness among the employers overseas has created the need for aggressive marketing and outsourcing, and access to strong distribution channels is critical for the outsourcing of new personnel. Benefits of Efficient Outsourcing of Jobs Overseas ·        Economies of Scale and Scope in quality and able human resources. ·        Unique Quality Human Resources owing to heavy emphasis on Effective Outsourcing Strategies An outsourcing company’s commitment to outsourcing & development activities has always been one of the top strategies to remain competitive in the market. ·        Differentiated Personnel / Human Resources Through the outsourcing of differentiated personnel originating from the outsourcing and development activities, the outsourcing company is able to create its own firm-specific advantages. The continuous pursuit of outsourcing and development processes enables the outsourcing company to produce a steady stream of originally differentiated personnel / human resources which makes it difficult for competitors to find substitutes. Because of this differentiated approach, the outsourcing company is able to outsource their human resources worldwide, which enables them in turn to maximize the returns on outsourcing and development expenditures. Outsourcing of Overseas Jobs in the United States In lieu of the present developments in the US society, there have been significant visions of outsourcing that evolved. A majority of these learning visions are based on the idea that outsourcing of jobs overseas is a social process where knowledge is denied instead of being acquired passively. Outsourcing, then, transforms into an interactive process. The interaction is being verified through the help of the participants in the outsourcing process such as the US workers and the US government. In this framework, high quality of outsourcing of jobs overseas would mean the continued guidance and support of the active learning process of the public. Obviously, this would call for an intensive and phased guiding strategy. When in the active pursuit of outsourcing of jobs overseas, the interaction of the US government with the US job market forms an integral part towards its success. Collaboration as a method is gradually being used by the US government nowadays. Through this approach, the US workforce can learn from the outsourced personnel through the imitation of their techniques in the socialization processes. In the process, the US workforce is able to obtain the chance to see their own ideas in a different aspect and therefore be able to take alternatives into consideration. The relative effectiveness of this approach is determined with the capability of the US workforce to continuously challenge their pre-acquired knowledge by trying to adapt to the interpretations of outsourcing. Aside from the US workforce and the US government, the different resources of outsourcing belong to a third category of factors of a learning environment. Moreover, outsourcing methods have shown signs of significant growth over the past years. Consequently, obtaining knowledge becomes more complicated. This is because the transformation of all this information into knowledge requires the US job market to possess the appropriate reference frameworks. But the US government can certainly help the public transform information into valuable knowledge. Strategic Options for the US Job Market Deriving from the analysis between the US job market and the impacts of outsourcing of jobs overseas, many strategic options would become imperative. It is therefore essential to evaluate these strategic options as to whether they are appropriate to the issues addressed, whether they are feasible enough to be implemented and their acceptability to key stakeholders. A. US Job Market Level Strategy There is definitely a need to reconcile both the inside-out and outside-in capabilities of the US job market. While its outsourcing strategy for jobs overseas involves focusing on its core competencies with job market position following its resource base, the US job market will be put into a disadvantageous position should it choose to neglect both the macro as well as the micro job market environment. Therefore, the US government and its job market has to be aware of the latest changes in outsourcing processes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as job market sensing, customer linking, channel bonding and technology monitoring. The advantages enjoyed by the US job market may come in the form of increased revenues. Knowing what the job market demands and the latest trends could help the US government fully exploit its research and development capabilities to come out with outsourcing strategies which are not only cost-effective but also high in quality. The strategic option can even be used as marketing tool where the focus is on staying close to the US workers and listening to their feedbacks. On the flip side of the coin, there will be huge mobilization of resources involved, and the associated risks bestowed on the US government. Nevertheless, the mentioned strategic option seems the most practical in the wake of globalization, since there is a sudden shift towards a more integrated and independent world job market. The key stakeholders too should not have any objections so long as the US job market’s core strengths are not threatened. By virtue of the US job market’s centralized control of its business, it is being expected that major barriers should not exist in carrying out such an option except additional time may be required given the scope and span of the operations. Understanding the strategic importance of outsourcing is something that the US job market has to be familiar with. It normally practices a centralized and globally scaled configuration of operations and capabilities. This allows information dissemination to be retained. B. Network Level Strategy There are various strategic options available for the US job market. These are enumerated as follows: ·        Tie up with various local outsourcing companies ·        Collaborate with major competitors RECOMMENDATIONS A tie-up or merger with various local outsourcing companies offers tremendous benefits in terms of access to their policies concerning outsourcing of jobs overseas, infrastructure and even their human resources. However, the US job market must not lose sight of its core competencies while pursuing these tie-ups. Otherwise, the image of the US job market might be put in jeopardy. Meanwhile, the collaboration of the US job market with its major competitors can be seen as a ridiculous move at first.  However, upon close examination, this move could pave the way for the US job market to improve even more its chances of outsourcing its personnel overseas. The bottom line is both sides would be able significantly gain in such an alliance. The US job market’s strengths in human resource development combined with the outsourcing capabilities of its competitors can transform them suddenly into an unbeatable force to reckon with. One possible setback, however, is the differences in the cultures of the outsourcing companies involved. Another possible setback could be whether any of the US job market’s competitors has the need to form alliances. In terms of appropriateness, both options are able to directly address the current issues mentioned. However, the question remains whether the US job market could be able to implement any of these options, and whether these options can be acceptable to the key stakeholders. Any merger or alliances may also involve the sharing of expertise. The US job market has traditionally relied on the inside-out approach. It is important to note that any merger transactions would have many implications on the US job market’s values and culture as well as the resources. The key stakeholders definitely would be concerned with such options and need to be convinced of the positive aspects. CONCLUSION The results of the analysis carried out on the process of outsourcing jobs overseas among US companies indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the process of outsourcing jobs overseas among US companies could still be expected to improve faster than average. The review of the US job market’s capabilities and resources revealed very little inconsistencies regarding their overall outsourcing strategies. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the US job market. The analysis among the US job market environment as well as its capabilities revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure its competitiveness. Also, the US job market has to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options. Credit:ivythesis.typepad.com

Sample Business Analysis Study on The Performance and Effectiveness of Job Outsourcing

OBJECTIVES As a person with knowledge of outsourcing, the author has always brought up to his superiors the viability of strategy forma...

AMERICA MUST STOP OUTSOURCING

AMERICA MUST STOP OUTSOURCING   Overview             In this paper, I shall present what outsourcing is, together with a more specific information about the extent of outsourcing. Likewise, I shall present the benefits and criticisms regarding outsourcing in America. Then, I shall discuss in brief the current situation of outsourcing in America together with a brief case study by Huber (1993). Finally, seeing the use of a “good” contract against the bad outcome of outsourcing. So is it really it? Let’s see.    Introduction             In the past two decades, we have witnessed a transformation not only of the organization of work, but also of the opportunities that we have to work and of the terms under which we work. Downsizing, restructuring, outsourcing, these and other buzzwords are summoned to describe the forces that are altering employment relationships throughout the work force. The expectations and obligations that link people to their jobs are changing. Those who tend to view the future in a positive light portray the evolving compact between employer and employee as empowering for the individual. The goal now is lifetime employability based upon continuous learning and skill acquisition; it is no longer lifetime employment based upon loyalty and commitment to the job. Those inclined to a more critical view see a future of growing uncertainty and markedly unequal opportunity. Most people will work longer and harder while millions of others will remain underemployed. Nearly everyone will experience greater job insecurity.             The issue of outsourcing, which is one of reasons for the current job insecurity amongst US workers, has recently received attention by the public as well as by policy makers. Both consumers and management as well, according to Wikipedia, focus often on a essential question: is the performance or quality of the outsourced service, or new organization of labor, on par with the expected standards of management and consumers? Also, how does outsourcing a service effect its quality as opposed to “in-house” work? These questions are rather suited to the cultural preference of employees and employers alike. And yet it falls on one thing; outsourcing is turning bad and thus must be stopped.             Before we discuss further, let us define outsourcing first. This one is from the Wikipedia website.             What is Outsourcing? According to the Free Online Encyclopedia – Wikipedia, Outsourcing often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of a certain operation. Usually, companies decide to outsource for the following reasons: lowering firm costs, to efficiently use labor, capital, technology and resources worldwide, or redirecting or conserving energy redirected at the competencies of a particular business. Outsourcing is also usually misunderstood for offshoring. Outsourcing, also from Wikipedia, is relative to the restructing of the firm whist offshoring is relative to the nation. Basically, outsourcing is a term used for labor organization within societies. Benefits and Criticisms             A 1995 Business Communication Review (BCR) survey said that outsourcing isn’t just about saving money any more. According to the survey, which was reported by Borthick (1995), some of the outsourced tasks today are: end user voice equipment management; Software/application design/development – for the data center; Data center operations; and, Voice systems equipment management.             Also, the survey said that the top five functions currently under consideration for outsourcing are: End user data equipment management; LAN and LAN internetwork equipment management; Software/application design/development for client/server and the data center; and, Network management for LANs and LAN internetworks.             Majority of the respondents for the survey however said that the best way to combat bad effects of outsourcing is a good contract. Many of them pointed out that an outsourcing contract should be as detailed as possible, with specific performance criteria.             More opinions by the respondents: (1) Respondents are in general more skeptical of outsourcing and less sanguine about their outsourcers’ objectives. 20 percent of respondents strongly disagree with the statement “I am confident we can find an organization to effectively outsource any or all of our communications functions/operations.” (2) The pressure to outsource has increased. 18 percent of respondents strongly agreed with the statement “The pressure from outside our department to consider outsourcing is much stronger now than it was a year ago.” And 11 percent strongly agree that “The pressure from within our department to consider outsourcing is much stronger than it was a year ago.” However, strong disagreement to this statement also increased. (3) Quality of service seems to be somewhat less important. In 1992, the statement “Outsourcing must provide end user service quality that is at least equivalent to what we can provide in house” received the most strong-agreement “votes.” Strong agreement is 43 percent. And, (4) It looks like more people are seeing productivity benefits on other projects as a result of outsourcing. Strong agreement is 12 percent on the statement “Outsourcing enables me to spend more time and effort planning and designing our communications future,” but strong disagreement is 9 percent.             The BCR survey thus conclude that, while price has become somewhat less important, both in vendor selection and as a determinant of outsourcing success, it’s far from irrelevant; 68 percent of all respondents agree with the statement “saving money is the principal factor in deciding whether to outsource a function.”             Elsewhere in the survey, nearly two-thirds (64 percent) said they expect to save money by outsourcing. Over half (55 percent) expect these savings to come from reduced personnel, while 30 percent expect to save on annual operating expenses. Only 7 percent each expect reductions in capital budgets or other budget categories.             These expectations are probably too high, considering the responses of large, experienced outsourcers. Only 55 percent of the respondents who currently outsource at least one function and have communications budgets over million expect to save money by outsourcing, and 46 percent expect to save on personnel. Thirty-one percent expect savings on annual operating expenses, 8 percent on capital budgets and 15 percent on other budget categories.             Many critics (Kaplan & Corbett) say that it’s that 15 percent that is starting to get more attention. The urge to save money may have started the outsourcing trend, but both analysts agree that the need to stay competitive, tactically and strategically, is the upcoming motivator. Outsourcing in America             American companies that are outsourcing their noncore operations and relying upon temporary, part-time, and contract employees are increasing more and more. Moore (1996) found that the largest private employer in this country is no longer GM or IBM. It is Manpower, Inc., which with 560,000 workers is the world’s largest temporary employment agency. Castro (1993) also found that each day Manpower, Inc., and its competitors dispatch one and a half million temporary workers– three times the number of just ten years ago–to offices and factories around the country. There they join the millions of other contingent workers, including part-timers, independent contractors, and freelancers, who today make up a quarter of the work force. The advantages to employers of using contingent workers are numerous. Even when these workers are paid at the same wage rates as regular employees, companies reduce their fringe benefit costs and often avoid having to meet equal opportunity and labor standards requirements. There is little reason to fear litigation for unfair labor practices, and little pressure to meet equal opportunity goals, when you never formally hire a large portion of your work force. The Results             If we are going to look at it, outsourcing thus results in job displacement. According to Moore (1996), outsourcing contributes to the mushrooming growth of both temporary help agencies and the contingent work force. Yes it does raise productivity with some employees, and yet, it undermines the motivation and employment stability of others. Contract is the Key?             Outsourcing may appear as the right course for companies trying to reduce cost.      It actually sounds too good to be true. In fairness, outsourcing can achieve staff reductions, reduced operating costs and improved service and performance. However, this is not always the case. Hira and Hira (2005) pointed out that often, the economic savings are less than anticipated. Further, as with other cost-reduction strategies, there are human resource implications such as decreased morale among U.S. employees as well as the loss of control over primary organization assets such as company data and innovative technology and techniques.             But the key, Domberger (1998) found, is to have a “good” contract, and to have all the involved parties have a common set of expectations. He further said that it’s not easy to find effective contracts that can serve as models, in part because most outsourcing agreements contain nondisclosure clauses. There are parts of an outsourcing agreement that seem to have something in common with maintenance agreements. Using Outsourcing to the Best Advantage             Its is true that outsourcing had placed it hands on America. At most it even proved to be very harmful to its workers. But America may still use outsourcing to its best advantage. In turn, we had used the enemy against itself. Let us not perceive outsourcing as an enemy but as an ally perhaps. This is with great caution.             There were recommendations into combating the bad effects of outsourcing. Good contracts and, according to Gussert (2005), changing the trade rules, were amongst the highly convincing thoughts to point out. A Case Study : Continental Bank                      Continental Bank: had struggled though the late 1980s in a state of financial turmoil, after a liquidity crisis. By 1990, Continental had turned to outsourcing in an effort to alleviate its fiscal troubles. Its cafeteria, security services, legal department, and property management had all been outsourced, but the unprecedented step of outsourcing almost all IT services was viewed with much skepticism by managers and financial markets. Information, and IT, are commonly regarded by banks and bankers as essential to their business. Surrendering them to an outsider is often perceived as endangering core competency; banks, it was thought, must retain complete and secure internal control over their IT functions.             But no bariles technology has ever led to a truly dominant position, or locked its rivals out of the market. Managers at Continental slowly came to the conclusion that information was a tool used by clever bankers to their customers’ advantage, but managing that information was not a banker’s core competency; access to IT is important, but owning it is not. More important were intimate knowledge of customer desires and requirements, and building solid long-term relationships with clients.             Market analysts expressed doubts about the wisdom of opening up proprietary technology — for example, cash management products, derivative instruments, and accounting systems — to an outsider. These technologies can take years and huge investments to create; wouldn’t outsourcing control over them be handing over the ‘crown jewels,’, endangering the bank’s security? In fact, this fear was exaggerated. Certainly, in the past, proprietary technology could produce large profits, but today it can be cloned in months or even weeks. Competitive advantages no longer naturally accrue to those institutions with the most internal IT ‘resources’, but to those with the flexibility to tap the source of the best available technology at an acceptable price.             Continental’s in-house IT department was unable to respond quickly and flexibly to customer needs, lacked overall strategy, required large investments, and had too many staff members for routine operations. Everything it did cost too much and took too long.             Therefore, in September 1991, Continental Bank chose ISSC (Integrated Systems Solutions Corporation, an IBM subsidiary) to manage its IT functions. Over the following three months, precise contract conditions were negotiated, covering issues such as the need for tight management and monitoring, confidentiality, penalties and pricing. The multi-million-dollar deal, spanning ten years, was signed in December 1991, and the contract commenced in January 1992.   Conclusion             Outsourcing became a significant and wide-spread aspect of the American business environment starting in the 1990s. But the fact is, outsourcing has been  used since the early part of the century by manufactures seeking to realize cost savings. Before, it was only limited to the production of component parts. But now, outsourcing has expanded into areas that were assumed to be immune from the process.             Outsourcing has been mentioned by some management scholars and practitioners, including Peter Drucker and Tom Peters, as the salvation of the manufacturing sector of the American economy. However, an unrestrained advocacy often times does not measure all costs associated with outsourcing. Garaventa and Tellefsen (2001) said that some costs are obvious, whereas other costs are “hidden” — more subtle and not easily observed or quantified. Hourly labor costs, costs per unit, and most other financial costs would fall into the first category but there are also inherent expenses that are not as overt. In addition to economic costs, an organization must be willing to accept the existence of administrative, human, and ethical costs as factors in their decision to outsource. Outsourcing is a complex, multi-faceted process, with implications and consequences that span department, division, and corporate boundaries. Moreover, it is essential that organizations contemplating outsourcing be aware of and include the “hidden costs” in their analysis prior to out sourcing. Credit:ivythesis.typepad.com

AMERICA MUST STOP OUTSOURCING

AMERICA MUST STOP OUTSOURCING Overview In this paper, I shall present what outsourcing is, together with a more specific inf...

BUSINESS PROCESS OUTSOURCING THAT INDICATES A FLEXIBLE APPROACH IN DOING BUSINESS AND FORDISM

Question 1: What do you think of the trends revealed in the above article? To what extent do they indicate a more ‘flexible’ approach to doing business in the 21st century?                       The article has been able to tackle the situation of the employees as well as the current trends of operations of service industry, specifically the call centre industries. It can be said that the trends revealed in the above article includes international human resource management, the concept of business outsourcing as well as the current situation of service industries within the context of globalisation.  It also discussed the impact of international business in India and its labour forces.             The importance of the determination of the impact of international business and the new trends in the business industries has become an accepted issue by practitioners, policy makers and academics alike ( 1996). As mentioned one of the important factors to consider when talking about the increasing number of business who wants to be recognised in the global market is the context of globalisation. The term “globalisation” has acquired considerable emotive force. Some view it as a process that is beneficial—a key to future world economic development—and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. Through this, the trend of international competitiveness has taken the quest on the alternative sources both within and outside the business environment. Such quest brought about the notion of outsourcing. Outsourcing as generally defined by those organizations that deliver such services, requires turning over management responsibility for running a segment of business. In theory, this business segment is not mission-critical, but practice dictates otherwise. Outsourcing business is characterized by expertise not inherent to the core of the client organization. Many businesses, like the call centre industries, are cutting back on operations to focus on the core business, reorganizing their business practices by downsizing, restructuring or re-engineering, and contracting out various functions and tasks. Often a task is considered for outsourcing if the work performed by a consultant would require hiring additional staff if it were done -house. In addition, work handled by a former employee who may perform a specific service is also considered as outsourcing. The decision to outsource is mainly based on cost, set-up time, and the availability of expertise. According to current literature, outsourcing is a trend that will continue. There are many benefits to outsourcing, including freeing up management resources, sharing costs, creating integrated networks, building new organization structures, training staff, and interfacing with other information systems. Outsourcing offers a company functional specialization and flexibility. Fierce competition has led many businesses to restructure and downsize staffs in an effort to save money. Vendors may save money because they have much tighter control of fringe benefits and run much leaner overhead structures. Moreover, they as well use low-cost labor pools more aggressively and, with the help of modern telecommunications, can move data centers to low-cost areas. In applying world-class standards to the company’s existing staff, all of whom have to re-qualify for appointment at the time of outsourcing, they could employ more effective bulk purchasing and leasing arrangements for all hardware and software. Similarly, companies must be flexible enough to adapt to a business environment in constant flux, so their functions have to respond quickly to changing demands. Vendors often can tap a wide range of resources, skills and capacities while internal staff may have limited capabilities. Companies often hire outsourced staff with the understanding they’ll be employed for a limited time. Thus, they can more easily drop or add people to the workforce without jeopardizing the company’s reputation as a stable employer. More important, the use of outsourced workers buffers regular employees from fluctuations in demand and enables the company to establish a stronger relationship with its regular workforce than would otherwise be possible. With this another trends and themes are running through many of the new approaches to management, and this include of a more flexible workforce. The search for improved flexibility has, according to  become employers’ new frontier in the management of labor (1990, p. 12). Flexibility can have a variety of meanings (, 1986;  1989;  1992;  1992), but fundamentally three forms of the concept can be distinguished ( 1993). Functional flexibility is the ability of the enterprise or the industry like the call centre industries to redeploy labor to cover new work tasks or new production methods. The second form is wage flexibility, in which the enterprise attempts to link wage payments to productivity and product demand. Finally, numerical flexibility is the ability to adjust labor inputs to product demand. These forms of labor flexibility have been well documented in industrialized nations ( and , 1993). In Australia, for example, the introduction of enterprise bargaining in the late 1980s led to considerable interest in flexible work practices ( 1991). Nevertheless, these studies have not resulted in any real attempt to examine the impact of such practices. This article undertakes this task by examining the practice of outsourcing. Outsourcing contributes to all three forms of flexibility. Tasks undertaken are contract- not craft-related, payment is made only for work completed, and worker numbers can be adjusted to the production requirements of the plant. The increasing use of contractors, both for the supply of components and for services, reflects an acceptance that the firm should concentrate on its core activities ( 1992). Non-value-adding activities, it is argued, can more efficiently be performed by firms that specialize in such tasks ( 1994). The perceived benefit to the firm is that its limited physical, managerial and financial resources can be focused on producing a quality product or service at a competitive price. While outsourcing can improve flexibility, the argument for adopting this practice tends to focus on cost considerations (1992). As Tully contended, outsourcing “holds down the unit costs and investment” and “frees companies to direct scarce capital where they hold a competitive advantage” (1993, p. 52). Another advantage may be improved industrial relations that result from shifting industrial relations responsibility to a third party. This can be the case where the union representing the employees currently providing the service is perceived as being unduly militant or where workplace reforms are being resisted ( 1993). Outsourcing may also be an impetus and agent for change. Contractors can bring to the organization more specialized and efficient ways of undertaking the given tasks ( 1993). This is important if the enterprise has work practices that are no longer relevant or economically sustainable. Outsourcing can, however, create problems for the enterprise. Outsourcing decisions tend to be incremental. As  concluded, “a whole series of incremental outsourcing decisions, taken individually, may make economic sense, but collectively they may also represent the surrender of the business’s capability to compete” (1992, p. 7). Core products or technology may be compromised and the firm could become dependent on a large range of suppliers ( 1991).  challenged the cost of outsourcing, claiming that “the economics are troubling at best and extremely costly at worst” (1992, p. 42). This view was shared by, who believed conventional accounting systems are incapable of providing the relevant cost information on which to base a decision. In the long term,  argued, outsourcing may not be the best strategy for every function (1993, p. 34). Similarly,  reported that outsourcing normally occurs not as part of a coherent strategy but in order to save money (1991, p. 8). As argued, ” outsourcing can provide a short cut to a more competitive product, but it typically contributes little to building the people-embodied skills that are necessary to sustain product leadership” (1990, p. 84). An additional problem is the coordination and supervision required when a company outsources activities. The Boston Consulting Group found “co-coordinating a gaggle of subcontractors is often more time-consuming – and costly – than managing in-house manufacture of the parts in question”. If the lack of coordination results in poor communications then this could also have “severe effects on workplace safety” ( 1994, p. 55). After considering the financial roots of outsourcing strategies, it is not surprising that the majority of the outsourcing literature has examined the financial effectiveness of this organizational improvement strategy. Although some have suggested that outsourcing efforts have not always been successful ( 1996), financial returns have been the most convincing argument in favor of outsourcing. It can be said that the paradox of globalization and the context of business outsourcing attached within can be considered a significant factor for the transformation of different international businesses like call centre industries ( 2001) to be more flexible in terms of management, business performance and operations and other related activities in order to survive in the stiff competition brought by these trends. Industries are now trying to find a better and effective way to be competitive in terms of its physical and economic resources and become flexible in all aspects of the business.   Question 2: TOYOTA and Fordism             In organisational development, there are different theories that are considered to be influential. One of which is the theory of Fordism. Fordism is a form of industrial production developed from Taylorist methods; the main aim is product maximisation through tight control over movements and separating planning from executing tasks.  (Fordism’s proprietor) became famous for both his Model T car invention and his revolutionary system of mass production. His company, based on highly productive, mechanistic and continuous production methods, formed in 1903 as he believed craftsmen (original car producers) could not meet consumer demand Ford would create with their methods. He believed the deskilling of car production was required to achieve ‘continuous improvement’ and mass production. Whilst other observers argue Ford’s motive was to effortlessly control labour and substituting it should it be uncontrollable. The skilled mechanical craftsman then became the lowly-skilled, specialized machine operator ( 2001:426).             However, in spite of the positive influence of Fordism in the market, some automotive companies or industries has not used or apply the concept of Fordism.  Such companies include Toyota, Nissan and other Japanese makers. The Japanese car industries have introduced other unique production system and reject the application of Fordism as part of their production system. Instead of using Fordism, Toyota has introduced the so-called Toyota Production System which is related to the Just-In-Time system of the Japanese. Toyota is known to be one of the largest automotive industries in the world. The company was founded in 1937 as a subsidiary of Toyota Automatic Loom Works. Toyota’s first car was launched in 1947, with global expansion beginning in Brazil in 1959. A significant early competitive advantage (especially in terms of cost) for Toyota was its focus on improving production systems, based on Just-In-Time and Kaizen methods. Toyota listed its shares on the New York and London stock exchanges in 1999. While the automotive manufacturing and financing businesses are its primary sources of income, the company also offers financing in relation to its vehicle business, as well as other small business units including telecommunications, industrial products, housing, and boats. Along with Ford and GM, Toyota is seen as one of the most recognizable global auto brands. Its scale and depth of products enables Toyota to minimise risk of introduction of new models, and spread costs over a wide range of models. Toyota’s wide range of brands allows the company to capture revenue from a broad section of consumer segments. Toyota’s recognized superiority in high-tech production gives it a large advantage over its rivals. One of Toyota’s main concerns is to attract and retain innovative engineers to sustain this competitive advantage. Toyota, being Japanese has used Just-In-Time (JIT) production method allows companies to gain supplies just before its intended use, hence flexibility to the economic conditions of demand. However, it could be argued that JIT is a Fordist regime. But, not all companies can afford to implement such systems (technology is expensive); it could be argued only national/multinational corporations can meet the cost, so flexibility is limited. The view that industry has now become Post-Fordist is supported by  (1991 whereby firms are less hierarchical and produce small batches of specialised commodities. ( 2000:73), as opposed to Fordist massively produced homogeneous products. The JIT method is flexible to demand conditions, allowing companies to gain supplies just before their intended use. Also, JIT requires a skilled and trained workforce due to varied work and quality discussion circles on how to improve production; thus Post-Fordism requires a higher trained workforce than Fordist managed strictly controlled labour. However, it could be argued that JIT is a Fordist regime. Also, Fordism had resource usage problems e.g. extreme use of natural resources (fuel, energy, etc). Just-in-time production is closely associated with the Japanese motor industry and particularly Toyota. This approach to the management of stocks and material flow was popularized in the West by business writers such as (1982; 1986) and began to receive widespread attention, particularly in the USA, as the Japanese car makers gained a share of the market and then set up overseas operations. The final key ingredient in the Toyota management strategy was the system of small-lot production. In the context of limited and rapidly shifting markets, Toyota could not mass produce on the Fordist blueprint, but had to use its factories flexibly to manufacture a variety of automobile models in relatively small quantities. , however, recognized that the American system—with automakers churning out standard products in large volumes using specialized equipment—had its limitations and that manufacturing a wide array of products in low volumes with multipurpose machine tools, when allied with the “clockwork-like meshing of just-in-time,” ( 1992) could be even more efficient than traditional Fordist arrangements. Crucial to ‘s vision was the perfection of a system for drastically reducing machinery setup times, allowing for the sequential production of small lots without long, unproductive periods of retooling and recalibration. Under the guidance of , an industrial engineer and consultant to Toyota, a number of creative means for rapidly changing dies in machine tools were developed. By the end of the 1960s,  had so simplified setup procedures for stamping presses—a complex operation which required hours or even days in Western factories—that Toyota could complete a full changeover in less than ten minutes ( 1985, , 1989). With such techniques in place, Toyota’s “lean” production paradigm was complete, and the mature system was diffused throughout the company’s workshops by the early 1970s. For all the declarations of the Toyota production system’s distinctiveness— one observer judged it “completely independent from conventional expertise,” others have proclaimed it “unique and unparalleled” (, 1984) “lean production” was constructed from classic Taylorite assumptions and the time-tested methodologies of Scientific Management. The ideological backbone of “Toyotism” was patently Taylorite: at the core of the “lean” model lay a compulsive urge to eradicate all waste within the manufacturing process, reduce costs, and boost the efficiency of labor.  The most important objective of the Toyota system has been to increase production efficiency by constantly and thoroughly eliminating waste. In fighting managerial fat, science and empirical rationality were to be the weapons of choice. The Toyota approach, one study concluded, was “a system of production, based on the philosophy of total elimination of waste, which seeks the utmost in rationality in the way we make things.” “Lean production” was premised on a “scientific attitude emphasizing facts” or, as  put it, on a “scientific and rational nature.” In stressing the evils of waste and the potential of science, the ideologues of “lean production” echoed the spare homilies of the  efficiency movement and the economizing prescriptions of generations of Japanese scientific managers. Another Taylorite preoccupation reaffirmed in the Toyota system was a passion for the setting of explicit work standards and the enforcement of strict labor regimens. Even in the early days of automobile production, Toyoda (1987) was an advocate of the rigorous standardization of procedures. Moreover, “lean production” techniques were fully consistent with traditional Taylorite notions of simplification and specialization. The architects of the Toyota system were sanguine—and surprisingly overt—in seeking to extract skills and information from shop-floor workers and invest any such commandeered knowledge in new machinery or standard work routines. Automation was a crucial aspect of the Toyota strategy, as engineers endeavored “to transfer the work of human hands to machines, and … to transfer the work of the human brain to machines (, 1989). As declared, “The key is to give human intelligence to the machine and, at the same time, to adapt the simple movement of the human operator to the autonomous machines (, 1988). Indeed, “lean production,” like the textbook application of Scientific Management, appeared “human centered” only to the extent that tapping the skills and defining the duties of individual workers would allow for the further ascent of labor productivity. Toyota tries to preserve its home-grown economic model such as the values it practices in its business practices to be able to retain their competitive advantage. Indeed, it is a hard task for the company to preserve its locally conceptualized model while maintaining linkages with the global economy. However, because critical success factors are established as key aspects needed by a company, this has become easier in dealing with the issue of globalization. Although the core values which have distinguished the management of Toyota are still retained, the company has stepped out to shine for the rest of the world. The latest developments in the company proved that it is stronger than ever, emerging victorious from otherwise discouraging situations such as the adverse effect of the strong yen.   Reference Question 1 Credit:ivythesis.typepad.com

BUSINESS PROCESS OUTSOURCING THAT INDICATES A FLEXIBLE APPROACH IN DOING BUSINESS AND FORDISM

Question 1: What do you think of the trends revealed in the above article? To what extent do they indicate a more ‘flexible’ approach to ...