OS -OUTSOURCING YOUR OPERATIONS

Question 1

OUTSOURCING

Answer 1

o Involves the use of external providers to perform operations activities
o Theoretically when a service is performed by a specialist, external provider it will be done at a lower cost and with a greater effectiveness than the same task done within the business

Question 2

Key operations activities that may be outsources include:

Answer 2

 Design
 Sourcing of inputs
 Manufacturing
 Logistics (transporting inputs and outputs)
o Outsourcing is often associated with employing low wage labour in the manufacturing process but it can often be used to take advantage of expertise, relevant skills and resources
o Outsourcing can allow the business to adopt a leaner more responsive structure to be effective in achieving these gains, outsourcing must be monitored and reviewed.

Question 3

ADVANTAGES OF OUTSOURCING

Answer 3

o It allows simplification of businesses processes and activities (ability to focus on key businesses activities).
o This results in greater efficiency and ultimately cost savings
o Using an external provider comes access to latest technology without the capital investment as well as access to skills/resources which are lacking in the business
o Additionally, outsourcing allows greater flexibility in terms of uses of labour and respond to demand.
o The strategic (long term) benefits include the ability to avoid trade barriers, exploiting time differences between countries and expert advice from providers

Question 4

DISADVANTAGES OF OUTSOURCING

Answer 4

o Outsourcing may come up with an up-front cost and sizeable payback period. It may take time for the initial investment to pay for itself with lower costs
o The use of external providers may produce communication and language barriers as well as a loss of control over standards and information security
o The organisational change and redesign from outsourcing (such as job losses) may lead to resistance to change within the business
o Outsourcing activities and skills can lead to loss of corporate memory that nay be hard to recover
o Outsourcing may also cause damage to brand reputation.

Question 5

WHAT IS THE RESULT OF EFFECTIVE OUTSOURCING

Answer 5

o Effective outsourcing of aspects of the operations process will reduce costs which will allow for a business to reduce prices or increase profit margins
o Focusing on core business/specialisation may result in further cost savings or improvements In speed and quality.

Question 6

OUTSOURCING AT IKEA

Answer 6

As a global business, IKEA has taken advantage of outsourcing in three main ways:

1. The outsourcing of manufacturing to local suppliers
2. The outsourcing of specialty products and services to specialist providers
3. The outsourcing of assembly to the consumer