Strategic Importance of Outsourcing in U.S. Manufacturing CompanyAn increase in market competitions, decision to lower production costs and shortened time to market are the driving forces that make a large number of manufacturing companies adopting the outsourcing policy. Outsourcing is the management policy of allowing the third party external providers to take up the activities of non-core activities of an organization to make firms focusing on the core businesses. In the contemporary global business environment, firms are required to produce the innovative products, and developing a new strategy to increase profitability, outsourcing has become a new business technique that firms employ to remain competitive. Thus, outsourcing helps manufacturing companies to lower costs and remain competitive in the fiercely competitive business environment. However, there is an ongoing debate that outsourcing decision can be detrimental to organization business advantage.
The objective of the essay is to explore the benefits and shortcomings of outsourcing for the manufacturing companies.
Benefits and Shortcomings of Outsourcing for Manufacturing Companies
The goal to lower the costs of production is one of the major factors that makes the U.S. manufacturing companies to adopt the policy of outsourcing. Typically, outsourcing assists the manufacturing companies in reducing costs and competing in the global competitive environment. The outsourcing makes firms focusing on core activities because the core functions give them a clear leadership position and deliver greater value to customers at lower costs. Dabhilkar et al. argue that outsourcing high volume of materials to suppliers assist firms to lower the fixed costs because the higher capacity utilization of the machinery and plant space will be reduced. (146). Moreover, the outsourcing decision assists the manufacturing companies to lower the variable costs when entrusting higher volume of materials to a third party. When firms design the same type of materials for different customers, it leads to cheaper costs of sourcing materials. For example, "engineering/design capability for outsourced parts can lead to lower variable costs." (Dabhilkar et al. 146). When a firm outsources a design of large volume of the materials to a third party company, they will be able to reduce the variable costs by enjoying the economies of scale from outsourcing. For example, a company that outsources its operations to low-wage countries will enjoy a reduction in the variable costs.
The outsourcing can also assist firms to gain power over suppliers. Porter argues that pressures from suppliers can make firms increase product prices and lower the quality of the final products. (1). When there are few suppliers in the industry, their bargaining of power will be high compared to the availability of a large number of suppliers forcing...
The big three will likely weather the tsunami, as completely different entities than they have been in the past, possibly even more strikingly different than they were before and after the Japanese management style implementation in the 1980s. With these and other changes likely in the industry in the near future The industry will once again prove flexible and innovative in changing with the times. Works Cited Brown, Shona L., and
BEST BUY CO. INC. STRATEGIC ANALYSIS Strategic Analysis of Best Buy Current situation A- Current performance B- Strategic posture Corporate Governance A- Board of directors B- Top management External Environment: Opportunities and threats A- Natural physical environment B- Societal Environment C- Task Environment D- Summary of external environment Internal Environment: Strengths and Weakness A- Corporate Structure B- Corporate Culture C- Corporate resources D- Summary of internal environment Analysis of Strategic Factors (SWOT) A- Situational Analysis Strategic Alternatives and Recommended Strategy A- Strategic Alternatives Recommended Strategy Implementation Evaluations and control Part II Functional and Business strategies of
Outsourcing has made great controversy within a number of industries lately. Essentially, outsourcing is "the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees" (Conjecture Corporation, 2012). Yet, this movement is not as easy or pain free as it sounds. Yes, outsourcing can help keep costs down and allow a company to remain globally competitive; however, outsourcing can also cost
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Prestowitz (2005) addresses the incongruity that this is presenting to the American laborer. Even as education costs continue their annual climb, the competition for jobs in service and technology industries is making a loser out of the American white-collar worker. The economic demands created by the social parameters of American educational and professional advancement dictate such occupations must command a wage spectrum concordant with the attendant costs above mentioned.
To be sure, serious obstacles still remain in Europe -- most notably, the rigid labor laws that make relocating jobs a long and costly process. For example, while it's relatively easy for companies in the U.S. To fire employees whose jobs they want to outsource, to lay off an employee in Germany, a company first has to justify its decision to the union and then give its worker a
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