Title: Strategic Outsourcing and Business Model Definition
1Strategic Outsourcing and Business Model
Definition
2The next business model?
3Different reasons for not making the economics
of outsourcing (1)
- The search for flexibility. Manufacturers of
original equipment (OEM) outsource production
when demand is high and cancel it when orders are
cancelled or demand falls. Thanks to the
substitution effect between fixed and variable
costs they obtain higher cost elasticity. - 2. Lower costs, especially when the firm can
benefit from suppliers economies of scale (a
supplier can integrate demand from a large number
of clients, as against the purchasing firm) and
economies of specialisation (a supplier can
specialise in single activities and reach
world-class levels of excellence).
4Different reasons for not making the economics
of outsourcing (2)
- Less investments in fixed (machinery, equipment,
production lines, transport systems) and working
capital (input and output stocks), which are
undertaken by suppliers. Less investments in RD
as firms can take advantage of the numerous
innovations available on the outside supply
market. - 4. A greater focus on client needs and services
and product development activities, i.e. on key
activities for value creation
5The Nike model
- Nike employs approximately 30,000 people
worldwide. - Nike brand has some 1,000 contract factories in
the Americas, EMEA, North Asia and South Asia,
providing more than 800,000 jobs to local
communities. - From its headquarters in Beaverton, Oregon, Nike
manages a worldwide virtual company combining
internal RD functions with a low cost
manufacturing strategy. - Its Air Max model is designed in sites in
Oregon and Tennessee and developed jointly by
American and Asian technicians in the USA, Taiwan
and South Korea. Shoes are then assembled in
South Korea (mans size) and Indonesia (boys
size) from dozens of components supplied by firms
in Japan, South Korea, Taiwan, Indonesia and the
United States.
6Nikes value chain?
INFRASTRUCTURAL ACTIVITIES
HRM
SUPPORT ACTIVITIES
MARGINS
NPD AND TECHNOLOGY
PROCUREMENT
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING AND SALES
SERVICES
MARGINS
PRIMARY ACTIVITIES
7Nike as a supply chain orchestrators
- Focus on a portion of the value chain
- Emphasize partnering
- Invest in brands
- Minimize tangible investments
- Arbitrage international factor price differencies
8Managing the supply chain
Technology
Communities
Market research
Research
Manufacturers
Suppliers
Distributors
End users
Suppliers suppliers
Consultants
Other Services
Logistics
Design
9Outsourcing trends in car manufacturing
- The car industry is undergoing dramatic changes
as manufacturing is today increasingly moving to
supply markets, while OEMs or vehicle brand
holders are focusing on design, engineering and
marketing. - For instance, Porsche Boxter and the Porsche
Cayman are completely assembled by Valmet, a
Finnish engineering company.
Canadian company Magna assembles cars for all
major carmakers and has bought from them various
plants including the site in Styria (Austria)
where Mercedes-Benz E-Class, Jeep Grand Cherokee,
Chrysler Voyager, Saab 93 Convertible, BMW X3 are
assembled.
10What is Business Process Outsourcing (BPO)?
- Pre-manufacturing activities
- Design and engineering
- Consulting in packaging
- Concurrent engineering
- Production tests
- Prototyping
- Manufacturing and accessory activities
- Logistics management of supplies
- Assembly
- Packaging
- Quality controls
- Post-manufacturing activities
- Distribution logistics
- Technical assistance services
- Management of spare parts
11Contract electronics manufacturing
Foxconn is the world leader for joint-design,
joint-development, manufacturing, assembly and
after-sales services to global Computer,
Communication and Consumer-electronics ("3C")
leaders.
12IT-enabled outsourcing
- Thanks to digitalisation and information
technologies, outsourced activities can now be
carried out remotely at locations that are very
far from the company that outsourced them. These
activities include - Data centre management,
- Web hosting and website management,
- Data entry services,
- Accounting services,
- Customer services, such as direct marketing, call
centres and help desk services, - Text and graphic editing services,
- Management of distance learning platforms
13Key principles of strategic outsourcing
- Carry out in-house only activities that are
critical to the value chain and in which the firm
has a competitive edge. - Outsource activities in which suppliers have a
competitive edge in terms of volumes, efficiency
and quality. - Use outsourcing as a means of generating the
incentives necessary to improve internal
performance. - Limit your vulnerability in the event of a
break-up of relationships with suppliers or
overall market failure.
14ZARA the exception to the rule?
15The Zara paradox
- Localization of operations
- Commitment to fixed assets
- Downwards vertical integration
- Premium image and stores without advertising
- (Fast) followership
16Zaras value chain?
INFRASTRUCTURAL ACTIVITIES
HRM
SUPPORT ACTIVITIES
MARGINS
NPD AND TECHNOLOGY
PROCUREMENT
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING AND SALES
SERVICES
MARGINS
PRIMARY ACTIVITIES