Saturday, 5 April 2014

Strategic Outsourcing



Assalamualaikum w.b.t

         Today we want talk about the strategic outsourcing in one company. Outsourcing can be defined as the complete transfer of a business process that has been traditionally operated and managed internally to an independently owned external service provider. Complete transfer means that the people, facilities, equipment, technology and other assets are no longer maintained internally once the business process is outsourced. Then outsourcing also sometimes thought to be similar to subcontracting, joint venturing and contract manufacturing. Outsourcing consider, firms are evaluating whether or not to reverse a prior decision to make. Outsourcing reshapes a firm’s boundaries.
Why the organizations do outsourcing business process? Lower operational and labor costs are among the primary reasons why companies choose to outsource. When properly executed it has a defining impact on a company’s revenue recognition and can deliver significant. Some generic strategic benefits of outsourcing are:
1.       Cost minimization
-          Accomplished by reducing direct operating costs, eliminating overhead costs and transforming fixed costs into variable costs.
2.     Refocusing the organization to its core competencies
-          Accomplished by focusing what the organization does best and/or transforming the business to focus on new products and services.
3.       Improvement in operating performance
-          Increasing quality, increasing productivity and obtaining new capabilities technologies from external sources.
4.       Increased market share and revenue
-          Assessing the providers’ network and accelerating expansion into new markets.
Specific benefits of outsourcing:
1.       Reduce and control operating costs.
2.       Improve quality.
3.       Change company focus.
4.       Acquire external capabilities.
5.       Refocus scarce resources for alternative uses.
6.       Reduce cycle time.
7.       Obtain cash infusion.
8.       Reduce risks.

The element of startegic outsourcing is 5 steps. It is:
1.       Strategic evaluation.
2.       Financial evaluation.
3.       Supplier selection and sourcing model.
4.       Managing relationships.
These steps can and should be modified to fit the spesific organization and outsourcing objectives. This steps is important in order to achieve continuous improvement and communication between the required outsourcing activities. The strategic evaluation and financial evaluation is before the company outsource. Supplier selection and contracting is during outsource and transition to external sourcing model and managing relationships is after the company outsource.
First step is strategic evaluation. That is a discussion of the make-or-buy decision will be helpful in analyzing what may or may not be good strategic candidates for outsourcing. The make-or-buy decision is to understand the strategic importance(value) of the activity or system.
Second step is financial evaluation. That is critical to ensure that outsourcing makes short-term and long-term financial sense. Many cost are only relevant when considering international sourcing alternatives or are only pertinent when considering the outsourcing of manufacturing activity.
Third step is supplier selection and contract development. The supplier selection is identify and investigate a potential supplier is for the buying firm to compile supplier profiles for each potential supplier. Knowledgeable about all potential supplier and aware of how they are rated by each function within the buying firm. The buying organization should clearly establish expectations for the potential suppliers and discuss the scope of work and the appropriate pricing for the outsourcing activity. The contract development is key to effective governance of the relationship between the two independent firms.
Step four is transition to external sourcing model. The transition will be 3 criteria. That is:
1.       Communication criteria – how should the external initiatives be communicated to the affected and unaffected employees.?
2.       Personnel criteria – what packages will be offered to affected and unaffected employees.?
3.       Transition criteria – when will the activities and resources be moved to the supplying organization.?

The last step is relationships management. That is the organizations work together using their specialised resources innovatively to achieve goals and objectives. Then the organization should be active in monitoring and evaluating performance and solving problems.
   If any constructive ideas can be added in the spaces comment below.That all.

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