Benefits of Outsourcing in Supply Chain Management

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BENEFITS OF OUTSOURCING IN SUPPLY CHAIN MANAGEMENT

written by: Lauren Mercer
MKTG 3130 – Final Term Paper

TABLE OF CONTENTS

I. Supply Chain Management and Outsourcing ………………………………………… 2

II. What is Outsourcing …………………………………………………………………. 2

III. Important Processes Related to Outsourcing..………………………………………. 3

IV. Advantages of Outsourcing …………………………………………………………. 4

V. Disadvantages of Outsourcing ………………………………………………………. 9

VI. Current Changes in Outsourcing …………………………………………………... 11

VII. Outsourcing Works …………………………………..…………………………… 13

I. Supply Chain Management and Outsourcing
Supply chain management is a horizontal process that crosses the company and spans countries in scope. Time, distance and the nuances of operating in a vertical organization are challenges. Therefore identifying needs and problems requires that the process itself must be addressed and how outsourcing improves the overall process. Outsourcing focuses on business process outsourcing. Supply chain outsourcing will be divided along the lines of key needs and focuses on business process outsourcing (BPO). Supply chain BPO will be an active part as firms move to compress time and increase inventory velocity. Supply chain outsourcing can help an organization build a responsive, integrated supply chain that operates in real-time with suppliers, partners and customers, a highly complex proposition that requires a unique combination of consulting, technology and services skills. Supply Chain Management offers an organization the opportunity to outsource supply chain while continuing to focus on its innovations and core competencies. The outsourcing transformation will lead to competitive advantages and to increased company and shareholder value.

II. What Is Outsourcing?
The term outsourcing did not enter the English-speaking lexicon until the 1980s and has since become a popular political topic of debate, especially during election years. Although a precise definition of the term outsourcing has yet to be agreed upon, many people view the following as the universal definition: “the contracting with a third party service provider, usually another company or person, to provide services or a particular function that might otherwise be performed by in-house employees of the business.” In other words outsourcing is the contracting out of a business function to an external provider by entering a contractual agreement involving an exchange of services and payments for the function.

Many people believe that outsourcing is a recent phenomenon, but it has actually been in as existence as long as work specialization has existed. Almost all companies have been known to use some form of outsourcing in one way or another. Typically, the function or functions a company chooses to outsource are those that are considered to be non-core to the business itself. Functions that require specialized skills that are unavailable to the open market are also commonly outsourced with a third party provider.

III. Important Processes Relating to Outsourcing
Recently many terms have developed that revolve around outsourcing and an explanation of these terms is needed to get a full understanding of outsourcing and what it entails. The most popular of these terms is offshore outsourcing, which is the practice of hiring an external organization to perform some business functions in a country other than the one where the product or services are actually developed and manufactured. Offshore outsourcing can be can be contrasted with offshoring, in which the functions being outsourced are performed in a foreign country by a foreign subsidiary. In addition, several related terms have emerged to grasp various aspects of the complex relationship between economic organizations or networks, such as nearshoring, multisourcing, and strategic outsourcing.

Nearshoring, also known as nearshore outsourcing, has become competitive with outsourcing....
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