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outsourcing

Dr. Ron Lembke. outsourcing. Outsourcing - What is it?. Transfer activities to outside providers Outside providers do activities Resources: people, facilities, equipment Decision-making responsibility OEM = Original Equipment Manufacturer name on the product, does not produce

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outsourcing

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  1. Dr. Ron Lembke outsourcing

  2. Outsourcing - What is it? • Transfer activities to outside providers • Outside providers do activities • Resources: people, facilities, equipment • Decision-making responsibility • OEM = Original Equipment Manufacturer • name on the product, does not produce • Flextronics/Solectron, Foxconn makes it for you

  3. Strategic Sourcing • Has to be feasible to outsource • Assembly line balancing – probably not a step in the middle • Figure out what to buy from whom • What do we want to accomplish? • More effective! • More efficient! • Continuous Process Improvement?

  4. Outsourcing – Why do it? • Organizationally-driven reasons • Focus on what you do best • More flexible capacity • Employees: career paths • Improvement-driven reasons • Better quality & productivity, cycle time • Gain skills not otherwise available • Associate with superior providers • Financially-driven reasons • Reduce assets, improve ROA • Lower fixed costs • Cash from selling capital equip.

  5. DIY: Lower cost No capable suppliers Inadequate supply Competitive Issues Core competencies Specialization Low purchase cost Lack of capacity Want to gain skill Reduce inv. costs Management focus Patent issues Make or Buy Decision Reasons to Make Reasons to Buy

  6. Other Factors • Degree of coordination with other activities • Relationship-specific investments • Easy to copy technologies, or low IP (intellectual properties) protection • Second-tier sub-suppliers

  7. What to not Outsource • Core activities • Key to the business • Do not confer competitive advantage • Strategic activities • Key source of competitive advantage • X-box – Microsoft never considered making • Flextronics in Guadalajara • $5 / hr vs. $1 in Doumen, China

  8. Outsourcing Example • In 1981, IBM ‘PC’. • Consumers care about hardware • No one cares about the software that lets them talk to the processor. • Outsourced the OS to whom?

  9. Anybody heard of “Microsoft?” • UCSD Pascal $450 • CP/M $175 • MS-DOS $60 IBM: ‘05 Lenovo $1.75b MS: 2012 EBITDA $31b

  10. Summary • Defining outsourcing • Benefits of outsourcing • When to do it or not do it • Lessons from IBM and Microsoft

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