Sunday, June 5, 2011

Outsourcing: "It Depends" on the Industry

"Strategic Sourcing" praises outsourcing from the perspective of streamlining supply chains and finding less expensive providers of warehousing space and assembly line processes. That's great news, unless you're a 7-Eleven employee whose job is outsourced. My problem with the article is that it doesn't examine the employee's view of how outsourcing affects the efficiency of the company. How much are the employees being paid under the new assemblage of outsourced processes? Are they receiving fair wages and benefits?

The corporate view would be that most customers who visit a 7-Eleven don't give much thought to how bags of chips and other snacks end up on the store's shelves. They're concerned that employees in other countries are receiving low wages so that 7-11 can increase its shareholder price. I'm not saying outsourcing is wrong, I'm just saying that the other side of it deserves recognition. It's certainly worth noting in any analysis of how outsourcing helps a company's financial performance.

One thing that customers generally care about is quality. If outsourcing potentially effects the quality of the product a company is producing, is it truly worth the financial benefit of outsourcing it? Not all industries can benefit for outsourcing, and I would suggest that it can be a plainly wrong answer in the case of the newspaper industry, which is looking for ways to reduce costs while maintining a product people want to read. Outsourcing has been a solution that some media outlets have tried in terms of copy editing functions, but it's an unfortunate choice.

Some U.S. firms have tried to outsourcing copy editing and even reporting to firms that have employees based in other countries http://www.businessweek.com/globalbiz/content/jul2008/gb2008078_678274.htm.

Reporting requires detailed knowledge of a local city or town, an understanding of the nuances of readers, colloquialisms and other local traits. Copy editors half a world away can't be expected to have that perspective.

"Strategic Sourcing" acknowledges this problem, "Capabilities that do not require physical proximity are good candidates for offshoring...."

I like the article's matrix for determing what functions a company should outsource. It doubles as a way of picturing a copmany's unique strengths and weaknesses and can even pinpoint an opportunity to grow through in-sourcing in an area in which the company excels. I think the matrix could be a useful tool in the group projects as it quantifies and otherwise subjective set of traits of a company.

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