A formal written 10 page research paper on Outsourcing related to global logistics or supply chain management.
The Advantages and Disadvantages of Outsourcing and The Effects it can have on a Corporation
Research paper format needs to be as follows:
2. History of Outsourcing
5. The effects it can have on a corporation such as General Electric or other major corporations. With emphasis placed on General Electric
The paper should include the following:
– Overall format, i.e., typed, use of page numbers, title page, table of contents, illustrations, etc.
– Structure and clarity of the report.
– Use of information to support the position including illustrations, photos, figures, and references, as appropriate.
– Evidence of proofing, i.e., few or no spelling errors, appropriate labels on figures and tables, etc.
– Variety and documentation of references used. Format for citations and references should follow APA style conventions
Sample Research Paper
Advantages and Disadvantages of Outsourcing, and its Effects on a Corporation
The understanding of how to manage logistics is important especially with the increasing competition and the complexity of the business operation in the world today. The effective logistical management is vital in maintaining and realizing the company’s competitive advantage. The Council of Logistics Management recognized logistics to be a management process that involves a plan for implementation and the control of supplies and the finished goods from the point of their origin to the destinations where they are going to be utilized.
International logistics refers to how the flow of information and the resources are controlled and managed in the company’s supply chain across the borders until they reach the final consumer (Sople, 2007). To realize the full benefits of the international market, a company is obligated to plan on how it would supply its products in the international market or outsource the function to the other companies in the international market. This paper seeks to explore the advantages and disadvantages of outsourced services in an organization. Moreover, there is discussion of the effects of outsourcing to the companies such as the General Electric follows.
History of Outsourcing
The development of outsourcing has a deep history. The activities of outsourcing were earliest used in the Rome. In Rome, government outsourced the functions required in the collection of the taxes. Moreover, in the 18th and 19th century significant functions of the government in England were outsourced from the private sector. Some of the important functions outsourced in England includes; tax collection, prisons management, a collection of the industrial refuse and the public works (Jacques, 2006). Similarly, France and the USA had also been involved in the similar activities related to outsourcing. In France, contractors would be involved in the competitive bidding for the constructions and the management of the railways as well as the services for the collections and the distribution of the water to the households. Notably, the government and the private sector mainly did outsourcing of the services. Moreover, outsourcing was done on contractual basis.
In the twentieth century, companies shifted towards growth. These companies wanted to ensure the integration of all the services. At this time, outsourcing activities fundamentally decreased. In the 1970s, companies started to outsource some of the major functions in the efforts to minimize the costs of operation (Siepmann, 2013). Nevertheless, companies outsourced the functions to the specialists with the capability to provide high value. The word outsourcing started to be used largely after its use by Eastman Kodak in 1989. The company had outsourced its keys functions to the outside firms thereof (Jacques, 2006).
The development of outsourcing occurred in three phases. The first step is the traditional outsourcing. The traditional outsourcing developed in the 1970s and the 1980s. In traditional outsourcing, the activities such as catering, security and the maintenance were outsourced. The second phase of outsourcing is known as the neo-core traditional. The phase emerged in the 1980s, and the growth was realized in the 1990s. In this phase, companies concentrated on their core competencies and outsourced other activities that were not highly valuable to the company. In this phase, some of the outsourced activities included IT, recruitment and other services related to accounting (Jacques, 2006).
The third phase of outsourcing is known as strategic outsourcing. In strategic outsourcing, companies concentrate solely on the core competencies. The company subcontracts all the other activities that add lowest value to the company. Some of the simple activities outsourced include research and marketing. In the 1970s, companies had largely outsourced their production activities to outside subcontractors. For instance, in 1982, Nike Company had only manufactured 7% of the shoes sold to the customers. 70% of the shoes sold by the company had been imported from South Korea; 16% and 7% from Taiwan and Thailand respectively. During that time, some countries concentrated on the production of certain types of the productive activities (Jacques, 2006).
The outsourcing in the international level developed from the motives of the companies to control the cost incurred in the operations. It developed differently for the outsourcing in the country that developed due to the attractive specialized services and the advantages associated with the economies of scale. Outsourcing in the international level developed from the increased demand in the fields related to services and manufacturing differently. Countries where manufacturing of the electronics occurred include Canada, Mexico, and Taiwan. Notably, China was a favorable place where manufacturing activities could be outsourced due to the availability of cheap labor in the 1990s. The international outsourcing had largely been favored by the decreased transportation cost in the globe, especially by sea. The services that were majorly outsourced in the international market include technology and business processes. Outsourcing of the IT services grew in the 1990s during the threat of the Y2K. Companies were determined to ensure that they were safe from computer threats. Adequate IT services could not be found within companies (Jacques, 2006). Companies had to outsource for the services from the international subcontractors. Regarding business processes, services that were outsourced include such as accounting and recruitments.
Currently, there are three major drivers associated with the growth of the outsourcing at the international level. First, the increased cost of the company operations in both USA and the European countries. Second, the availability of companies with the capability to handle the provision of the services that other companies need to outsource. Third, the costs of the communications have dramatically decreased at the international level with the developments in the internet and technology (Jacques, 2006).
Advantages of outsourcing
Logistic outsourcing serves as a fundamental means to reduce the costs of the operations as well as spread the risks associated with the operation of the business activities. Once logistics are outsourced, the firms make fewer investments in the fixed assets. Much of the costs are turned from being fixed to the variable costs. The global markets are expected to continue growing in the long term. Thus, companies are making the efforts to increase their benefits gained from the growing market. Outsourcing logistics becomes an important strategy to gain competitive advantage (Blecker & Aldarrat, 2007). The logistic costs constitute twenty to fifty percent of the of the total operations expenses of the company. When such activities are outsourced, the company can increase the profit of the reduced cost of the operations.
Crucially, outsourcing logistics allows a firm to focus largely on the core activities that increase the value of the company. When managers focus on the core operations of the company, they have the capability to distribute the resources of the business in a rational manner. The adequate allocation of resources enables the firms to benefits from the advanced technology, specialists, and the capabilities of the well-trained employees. Moreover, Tompkins (2005) explains that a company benefits from efficiency created by the services provided by the employees from which the logistics have been outsourced. A firm that has specialized in the provision and incorporation of services would produce a remarkable performance. Specialized services provided by the company offering the outsourced services would make the company increase the quality of the products and the reduction of the capital investments (Tompkins, 2005). When the capital investments are reduced, the company has the possibility to serve as the industry as a cost leader and help to leap the benefits associated with the economies of scale.
Figure: Benefits of outsourcing (Salanță, Ilieș & Mureșan, 2012)
Technological flexibility is another crucial advantage experienced when firms outsource their logistics. The technology in the logistics is increasingly changing, and the companies in the international market need to update their technology used in the supply chain continuously. The third-party logistics (3PLs) continuously update their technology benefiting the firms that have outsourced services. The use of the modern technology vitally facilitates the adequate management of the stock crucial for competitive advantage. In 2007, Jacques (2006) noted that the increased use of the third party logistic technologies had contributed to the increase in the customer satisfaction by 7%. The third party suppliers have the capability to develop new networks in the supply chain (Tompkins, 2005). Through the new supply chains, services outsourced helps the company to increase its sales by the discovery of the new markets. Moreover, the use of 3PLs helps in the international market in tackling the difficulties associated with the geographical distance.
Largely, firms that outsource logistics experience reduction of its associated risks. When services are outsourced, firms experience the possibility of reduction in operational and strategic risks. The company also avoids difficulties associated with the management of the logistic department. For instance, companies face difficulties when dealing with workers a union when the company and the representative of the workers cannot agree (Deepen, 2007).
Outsourcing helps the company to keep the pace of globalization. An increase in globalization has escalated the demand for quality services while managements of supply have turned to be more complex. The company has increased the desire to increase the market share. With the increasing challenges due to globalization, outsourcing some of the operation activities is becoming significant. Folina (2012) noted that major companies are utilizing outsourcing of logistics to benefit from globalization and increase the efficiency in the operations.
Disadvantages of outsourcing
Despite the crucial advantages experienced by firms through outsourcing, there exists few disadvantages. One of the greatest worries of companies is the possibility of the loss of the control of the important manufacturing and the delivery process. The loss of control on the supply may compromise the quality of the services provided to the customers. The goods and the services provided to the customers might also be received at the wrong time.
Companies involved in outsourcing logistics also risk the possibility of losing their foundations that form the base of their success. Most of the company’s strengths are dependent on the capabilities bestowed in the manufacturing, and in the supply chains. If the company had an advantage in that area, there is a possibility to succeed in the global market than its competitors. Once the manufacturing or logistics are outsourced, a company becomes dependent on the operations of other companies (Siepmann, 2013). The operations and success of the companies remain in the decisions made in the company where the operation has been outsourced.
The possibility of the failure on the side of the company where the services have been outsourced will affect the operations, profit level as well as the brand of the company. In some instances, outsourcing might fail to meet the desired objectives. The company would have difficulties when the contract made on the outsourcing fails to meet the desired objectives of the company.
Notably, another crucial possibility is the failure of the firm to attain its objectives despite the operation of the outsourced activities. For instance, a company that desires to achieve reduction of operation costs by outsourcing. The company might fail to realize the objective despite outsourcing operations. Primarily, some of the managers of companies are dissatisfied due to the failure of being involved in logistics. In such instances, it is difficult to realize the desired objectives since the companies are unwilling to leave the outsourced activities to the responsible companies (Salanță, Ilieș, & Mureșan, 2012). Sometimes, when some of the company’s operations are outsourced, companies from which services are outsourced from perform poorly. There is also the possibility of the company being affected negatively by the lack of direct contacts with the customers. The loss of direct contacts with customers denies the company the access to vital information regarding customer satisfaction and possible complaints. The company will fail to respond to the customers’ needs and demands in time. Internally, the other negative consequence is that the company can lose the knowledge used in the management of the logistics (Jacques, 2006). Once lost, the company competitive advantage would be lost, and the company would be required to establish the supply chain again. The company would have the capacity to sell more of the appliance products, cooktops, microwaves, and all the other of the services provided.
Effects of General Electric
Outsourcing would have a huge impact on the operations, profit capabilities, and brand name of the company. The huge impact is the realization of the growth and the increased profit due to the extension of market shares in the sale of the electronics. The outsourced logistics would be used to establish new supply chains that would open the new opportunities to the company.
The company would have the opportunity to provide more innovative products in the market. After outsourcing logistics, the General Electric would have the capability to concentrate on the core process of innovations and production. Consequently, the company would provide more innovative electrical products to the customers. Notably, the core business objective of the General electronic is to change the lives of the people by providing products that meet the daily needs of their life. Moreover, other activities such as those directed towards the conservation of the ecosystem would be boosted. Outsourcing would allow the company to concentrate on the fundamental responsibilities, and the company can perform at its best at an affordable cost. The company from where services have been outsourced complements the company’s capabilities.
Largely, the operations of the company would be carried out at a high rate and efficiency despite the vastly increased activities towards globalization. The professionals would provide the outsourced services. There is a possibility of improved use of the technology and the improvements in the use of the technology.
Nevertheless, outsourcing of logistics is associated with the great risk in the successful operations of the General Electric. The General Electric is already a successful and among the best companies operating in the USA. If the logistic activities are outsourced, the cost of the operations would be reduced but the risk of the failure would be increased too. The company from which the operations have been outsourced from may fail to meet the needs of the customer adequately. Moreover, the company will not have access to the customer’s information. Moreover, it will not have the ability to respond to the customers complaints. The result is deterioration of the company’s reputations and the destruction of the company brand name.
The process of outsourcing has largely become complicated and sophisticated (Kersten & Bemeleit, 2006). Outsourcing would provide the important solutions to the General Electric especially related to the costs of the operations, but it will also impose risks on its operations. The supply chain becomes largely fragmented with the possibilities of the new entry of the competitors in the sector. Outsourcing has an impact on the fragmenting the operations of the General Electric. The fragmentations have the impact of reducing the competitive advantage of the company. It promotes the development of the new competitors in the areas where the services have been outsourced.
Outsourcing logistics is important to companies operating in the international market. Nevertheless, the possibilities of success are faced with the risk of failure. Largely, logistics has become very complicated in the event of the globalization. Therefore, outsourcing should be done cautiously especially to companies that need to realize the competitive advantage in the international market. Outsourcing is largely associated with the benefits related to the reduction in the costs of the operations. The company has the possibility to reduce the capital investments and concentrate on other important operations of the company.
Moreover, the quality improvements in the products are crucial in the presence of the outsourcing. The globalization has created attractive business opportunities. Such opportunities can be utilized by the business adequately through the application of the benefits of globalization. However, the company should be careful when outsourcing since it may lead to failure of the business (Hsiao, 2009). Consequently, the competitive advantage of the company may be compromised when the important operations are outsourced to other companies. Moreover, the success and profitability of the company may be placed in hands of a third party rather than capabilities of the managers. The outsourcing is necessary for the globalization but the it requires to be carried out carefully.
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