outsourcing ppt done

8/6/2019 Outsourcing PPT Done

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OutsourcingOutsourcing


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OutsourcingOutsourcing

Outsourcing is defined as the contracting of

one or more of a companys business

processes to an outside service provider tohelp increase shareholder value, by primarily

reducing operating cost and focusing on core

competencies.


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Why OutsourcingWhy Outsourcing

Focus on core competencies

Reduced Costs

Acquire new skills

Acquire better management

Assist a fast growth situationAvoid labour problems

Focus on strategy


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Avoid major investments

Handle overflow situations

Improve flexibilityImprove ratios

Enhance credibility

Maintain old functionsImprove performance

Begin a strategic initiative


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CURRENT VIEW ON OUTSOURCING

The numerously presented definitions ofoutsourcing have been varied from what is

concerned with the transfer of goods and

services that have been carried out internallyto an external provider to the procurementof products or services from external sources

of organisation.


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To describe the main features of outsourcing, the

transaction involved normally consists of two parts; thetransfer to a third party of the responsibility for the

operation and management of part of an organisation,and the provision of services to the organisation by thesupplier, usually for a period of several years.

Several studies have indicated that outsourcingoperations is the trend of the future, and thoseorganisations which already involved with outsourcing

are satisfied with the result. At present, the outsourcingof selected organisational activities is an integral part ofcorporate strategy.


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Benefits of Outsourcing

Cost savings The lowering of the overall cost of the service to thebusiness.This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower costeconomies through off shoring called "labor arbitrage" generated by thewage gap between industrialized and developing nations.

Focus on Core Business Resources (for example investment, people,and infrastructure) are focused on developing the core business. Forexample often organizations outsource their IT support to specialised ITservices companies.

Cost restructuring Operating leverage is a measure that comparesfixed costs to variable costs. Outsourcing changes the balance of thisratio by offering a move from fixed to variable cost and also by making

variable costs more predictable.


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(Contd..) Improve quality achieve a steep change in quality through contracting

out the service with a new service level agreement.

Knowledge Access to intellectual property and wider experience andknowledge.

Contract Services will be provided to a legally binding contract withfinancial penalties and legal redress.This is not the case with internal

services.

Operational expertise Access to operational best practice that wouldbe too difficult or time consuming to develop in-house.


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(Contd..) Access to talent Access to a larger talent pool and a sustainable

source of skills, in particular in science and engineering.

Capacity management An improved method of capacity

management of services and technology where the risk in providing theexcess capacity is borne by the supplier.

Catalyst for change An organization can use an outsourcing

agreement as a catalyst for major step change that cannot be achievedalone.The outsourcer becomes a Change agent in the process.

Enhance capacity for innovation Companies increasingly use externalknowledge service providers to supplement limited in-house capacity

for product innovation.


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(Contd..) Reduce time to market The acceleration of the development or

production of a product through the additional capability brought by thesupplier.

Commodification The trend of standardizing business processes, ITServices, and application services which enable to buy at the right price,allows businesses access to services which were only available to largecorporations.

Risk management An approach to risk management for some typesof risks is to partner with an outsourcer who is better able to provide themitigation.


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(Contd..) Venture Capital Some countries match government funds venture

capital with private venture capital for start-ups that start businesses intheir country.

Tax Benefit Countries offer tax incentives to move manufacturingoperations to counter high corporate taxes within another country.

Scalability The outsourced company will usually be prepared to

manage a temporary or permanent increase or decrease in production.

Creating leisure time Individuals may wish to outsource their work inorder to optimise their work-leisure balance.


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Challenges for OutsourcingLoss of Expertise Can lead to decrease or total loss of in-house

expertise

Loss of Control Increases organizations vulnerability as it

becomes partially or totally dependent on a service provider

Conflict

Need to modify policies/procedures or develop new

policies/procedures to coordinate with vendor

Uncertainty

Cost (perspective)Staff Morale


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Risks of Outsourcing Coordination costs: When any logistics function is outsourced coordination

costs typically increase. It is important for the company to account for theseand decide how they are to be managed with the 3PL.

Loss of internal logistics management capability: The knowledge and

expertise generated on the day to day operation will reside in the 3PL

company's management team. This becomes crucial as a company growsand makes reorganizing decisions. A close relationship with the 3PL can

help in this regard.

Reduced contact with final customer: Outsourcing the distribution function

might force the company to lose direct contact with the end customer (atleast physically). This has a critical impact on customer service. It is hard for

a company to define customer service for a 3PL if it does not itself have

direct customer contact. This can also have an impact on the introduction

of new products and services.


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Risks of Outsourcing

Biased choices of service providers: If a 3PL is owned by a large trucking

company and it's managing the distribution function, there might be some

pressure by the parent company of the 3PL to give a portion of the business,

even when it's not competitive.

Loss of voice in public policy issues: For example, if the distribution and

warehouse functions are outsourced, and there is a threat of some legislation

that will affect the warehousing and trucking industries, the company will not

be able to represent those interests, since they are performed by the 3PL.

Leakage of sensitive data and information: 3PL companies normally have

access to a lot of information that might be valuable to competitors, leaving

the company vulnerable.


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outsourcing ppt done

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