Outsourcing ....

Outsourcing: The complete Story

Outsourcing:- In 21st century, buzz of all opportunities comes from the word “OUTSOURCING”. Companies from the West started to offload less tedious work to Asian countries where primarily costs of doing that work was less as compared to doing the same task in there own companies. This started emergence of the service sector in India, which gave birth to companies like Infosys, Wipro for IT sector in India and many manufacturing units in China. If we study economy of China, there exports have grown multiple times due to work offloading by the companies to China. In the world where Globalization seems to be in agenda of all the companies, Is outsourcing really paying off for big companies ?? or Is it compromising the quality for the costs?? In this article we would try to revisit the topic of outsourcing whether it is beneficial to companies or it is putting there existence a big question mark. The following section has been decided in the following manner. Briefly, in this topic I would try to explain

­ what is outsourcing ??
­ What can companies outsource
­ Selecting the Vendors
­ Outsourcing: - Boom or Bain
­ Risk mitigation during outsourcing
­ Global Delivery system of Infosys
­ Should Poter 5 strategy principle be applied to Outsourcing??

Before moving ahead , we need to emphasize why a company should outsource. In this highly competitive and changing world, companies try to optimize their activities. So doing all the activities is next to impossible for companies. A company needs to identify the partner who could do the job as per the quality standards.

What should be outsourced ?

Identify WHAT companies can Outsource:-

­ Company needs to identify where their competence exists. Keep the core competency with the team and try to find partner who can do rest of things in proper manner.
­ Company need to identify what process or production unit changes a lot and risk could put to other party.

Case Study On WHAT should be Outsource:-

Dell is company, which sells Computers. Dell’s core competency is assembling computers and selling to consumers. All the parts, which are required in the computers, are procured from the vendors. It sets the standards what are required for its production line. Dell makes sure the product which are made by the company are as per the standards.









Company management needs to identify which activities needs identified, which could maximize the value for the stakeholder. There could be instance where lot of capital might be require to establish the product line which could be easily manufactured in eastern countries. Also if companies put all the resources to manufacture this product, it might erode the benefit to the company which it might get because getting out the work from outside.
­ Nike is perfect example how outsourcing could be successful in today’s environment. It have big designing unit in Europe, where it design as per the requirement of the youth where its product line is most popular. But it doesn’t have any manufacturing unit. Nike sends the designs to china for manufacturing. Nike management has made sure the product, which is delivered to the end customer it, is as per the quality standard, which it requires. Company get the product with quality it desires at much cheaper rate.
­ Dell computer is another example how the product company can make use of outsouring in efficient manner to control cost and mitigate the risk of obseleting the components. Dell started as assembler of computers. It releasized that selling through middle man is costing hell lot of money and it was effecting its bottomline so it started selling computers directly to customers. As business grew instead of setting the factories for vertical integration it expaned the market area to Europe. Company knew that business was expaning and it would be easier to invest on compent assembly but as technology was getting fast obsolete they had decide to outsource all the component. To make things easier they had always shortlisted the vendor who were ready to invest and also ready to deliver plugin components. This had shrink the number of employees required in the company as well ready for any change in the market environment. They were able to reduce the shelf life of the product using effective CRM methods.\
­ In 1990’s, new form of outsourcing started with outsourcing of services. Indian companies that included Infosys mastered the outsourcing business in software services. Company started with providing manpower to the clients than improved the infrastructure and started executing the business from offshore. This Global delivery system was pioneered by Infosys, which later had become the Brand of India, which become the hub of software service. In India compaies are targeting fulfilling Fortune 500 companies IT needs through state of class infrastructure. The companies have put the quality standards which SEI CMM level/ TL9000 so that all companies who outsource the work are confident enough to know that whatever task they are doing are as per the quality standards defined by industry.

What factors needs to taken care while selecting the Vendors?

Before deciding on the vendor, companies should check the past record of accomplishment of the company. What kind of Commitment Company has been following? Company is able meet there commitments. Is the company reliable that it would not sell technology to other competitors? Also in the same time, the company has not missed any of the end dates.

­ Before taking any decision, company management needs to find out the relevant vendors who can manage the work as per quality Standards Company the work as per the quality standards. Big telecom companies are targeting 5 9’s as the strategic availability of the networks, if they outsource, the companies needs to make sure that output would be as per customer expectation.
­ Past record of the company needs to be checked, whether they have delivered with quality to other customer. Brand name of the company from which company would be buying the services.
­ Vendors should be ready to customize as per the requirement of the company. In case of Dell when it was expanding the business, they wanted the supplier should also be able to increase there production, so they don’t have to look for the another vendors to expand there network.
­ Companies should have multiple vendors rather than just relaying on one vendors. This enable to have competitions between the competitors and they don’t become complacent.


Outsourcing: - Boom or Bain

Whenever outsourcing is debated, it starts with cost cutting by the company and management generally comes out with the statement that is s strategic move to outsource work. Do really company gains from the move besides getting work done cheaply. There would be varied answer but studies have revealed the company has gain competitive advantage in getting work outsourced as companies have become more open to change. If the company have get product which produce say X amount of product which is delivered by Y company. If company is coming out with new product they would like to obsolete this product, company would just scrap the ties with this person rather than having big workforce thinking how to reuse this factory.

Negative side of the outsourcing companies are shrinking, this means companies that were providing employment to individuals have started lying off people. The work, which was done by the companies, is being outsourced to cheaper destination. The company requires a manager who can track monitor the quality of the product rest labour class is either outsourced to china/India/Malaysia like companies. On the flip side, in the eastern companies there have been lot employment being generated. So spending power have increased as well the quality standards have improved which have been evident with software boom have been floating high in India with company like infosys/wipro etc have made the mark in world fastest growing companies.

Check Points Outsourcing ????

For any company to be successful in outsourcing, it needs to make sure checkpoint in system are well placed else the advantage it tends to get would be easily washed out. Company needs to identify the target why it is not producing the product and going for other vendor to make.

Major Reasons:-
­ company doesn’t have skill level, would require large amount of investment
­ Company would need to invest large amount of money and in the market product could be easily available
­ If company intends to make the product inhouse, Time to market could lead its competitor taking advantage.
­ It wants to reduce cost.

Regular Monitoring of Vendors :-

Companies Management should have regular meeting with the vendors so that to identify what are the factors, which could become the blocking factor in the coming days. Any such issues should be tried to address before the companies loosing the precious time to market there product.

Alcatel have given there worked to at least 5 vendors in India. They have policy to have subcontractors for outsourcing there work. They try to identify the vendors, which are specialist in the domain and try to negotiate on the price/deliverable. They have the work structure in which they have regular meeting at all level to make sure the progress of the work is on track and all the quality records required by the companies is met within the timeframe.

Future of Outsourcing:-

Figure shows the future of corporate world in 20th century. It shows that company size would be shrinking. They would be more specific to the customer needs and they would devise the product accordingly. The product would be such that it would be just a supplier to the user. The company would ask to design the product as per the company needs. More over the IPR would be with the company then company could request another to build or do mass production for the product. There could be distant location where the support of that product would be present.

Outsourcing is one of the best practices of 21st century. Companies are constantly in search of the place where work is efficiently executed and cost of operations is cheapest.