W3 Flashcards

1
Q

what is outsourcing

A
  • sub contracting some of the firms internal activities to outside providers (making use of outside resources)
  • outsourcing has slowly moved to core activities (manufacturing) not just peripheral ones like cleaning
  • outsourcing is followed by the decision to source suitable suppliers - this typically involves global sourcing
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2
Q

reasons for outsourcing

A
  • reduce costs
  • free up time to focus on core activities
  • improve quality
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3
Q

evaluation of outsourcing

A

advs:
- economies of scale - aggregating orders lowers costs
- transfers uncertainty - demand uncertainty taken on by suppliers
- allows focus on core competencies - enables company to focus o skills and knowledge that differentiate from comp

disadv:
- loss of comp knowledge - may open up opportunities for comp, shows that the company might be losing ability to produce new designs
- conflicting objvs - may be flexible but the ideas might clash between buyer and supplier
- delegation of control

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4
Q

Make or Buy?

A
  • this question is to find out whether or not to outsource
  • make = keep activity in house
  • buy = outsource
  • make = vertical integration (buy out) the supplier

3rd option = alliance - form a partnership with suppliers

Reasons for making:
- core competencies
- lower production costs
- protect quality

Reasons for outsourcing/ buying:
- free management time
- obtain technical skills
- reduce inventory costs

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5
Q

Outsourcing model (Arnold, 2000)

A

(look at diagram)

  • key question - is an activity core or non core to the business
  • don’t just focus on cost, is it core to the company?
  • anything core = keep in house (make)
  • anything that isn’t = outsource
  • if it compliments the core you can chose either
  • if it is vital core competency outsourcing could lose the uniqueness that makes the company
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6
Q

transaction cost economics (TCE)

A

TCE = engaging with the transactions with suppliers
- contract costs
- bargaining and decision costs

Related to make or buy:
- asset specificity is an important factor
- if it has high custom = costs will be higher (vice versa)
- if the business outsources smth with high custom suppliers could exploit and have high opportunism so keep it in house (look at photo)

Hierarchies:
- another important factor is the top to bottom structure of a company (hierarchies)
- if it is cheaper to go through all levels of management than outsource keep it in house

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7
Q

TCE criticisms

A
  • focuses on cost minimisation not value maximisation
  • implies all firms facing similar transactional attributes will reach similar conclusions regarding make or buy
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8
Q

Resource based view (RBV)

A

RBV = considers the firm as a bindle of resources and capabilities

  • core competencies = comp adv:
  • they are valuable / rare / inimitable (hard to copy)
  • the more you have the more competitive you become (look at photo)

approach to make or buy: (look at diagram)
- Companies seek to develop core competencies internally, leaving those that are non core to be developed and supplied externally - keep core activities internal and those that aren’t outsource

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9
Q

combination of TCE and RBV (diagram)

A
  • make / buy / ally - using TCE and RBV
  • TCE = when the asset spec is low and can strongly safeguard opportunism - outsource
  • if it is core to the company in the RBV and had high asset spec with high opportunism - keep it in house
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10
Q

Global sourcing (model)

A
  • global sourcing = sourcing a specific product in a different continent
  • traditional motive is about cost (low cost countries)

Advs:
- offers access to new suppliers that offer quality/ new tech etc
- access to scarce materials

Global vs Local:
- local does not mean good and global does not mean bad
- shipping fruit overseas by boat can be sustainable
- air freight food is problematic for the enivtonment (doesn’t happen all the time)
- local = higher costs - labour / legislation etc.

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11
Q

sustainable challenges for outsourcing

A
  • low costs may mean low ethical standards (cheap labour)
  • outsourcing = more pollution through transport
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