Question 1: Outsourcing is an often-used manufacturing strategy. Discuss the reasons for and against an organization outsourcing its production processes.
Reasons for Outsourcing Production Processes
- Business focus – the first reason for an organization outsourcing production process is to help them focus core business activities. By letting a third party to perform its production activities, the firm is able to focus on other core business areas such as operations and building customer relationships
- Reduced costs – outsourcing production helps the organization to give its manufacturing functions to a firm that has economies of scale, leading to reduced costs.
- Efficiency – outsourcing production processes to a manufacturing firm that has experience and expertise in a particular area leads to increased efficiency and better quality
- Solves offshore logistics problems – a firm may outsource manufacturing services to a country that is convenient for offshoring, or that which is located close to the target international markets. For example, outsourcing manufacturing to China to access the Asian markets.
- Increased reach and expansion – offshoring production processes leads to an expanded reach of the company to new markets.
Reasons against Outsourcing Production Process
- Loss of management control – the management will lose control of the production process because a third party is responsible for the process. This loss of control may lead to management problem and lack of strategic synergy.
- Poor service delivery – when the company loses control of its production process, it may fall below company standards in terms of service quality.
- Lack of Flexibility – another reason against outsourcing production processes is that the company loses flexibility. The firm may not be able to adapt to changes because the production process is being controlled by a third party.
- Management issues – changes in the management of the outsourcing firm may affect the relationship with the original firm.
- Instability – since the company does not control the management and business operations of the outsourcing firm, it may face risks of instability. The partnering enterprise may fail and go out of business, leading to complete failure of the production process.
Question 2: Organizations can have three levels of involvement with respect to customer service. What are these, and what is the importance of each?
- As a PHILOSOPHY: elevates customer service as an organization-wide commitment
- As a PERFORMANCE MEASURE: emphasizes customer service as specific performance measures
- As an ACTIVITY: treats customer service as a particular task that an organization must perform
Question 3: Explain the relationship between customer service levels and the costs associated with providing those service levels.
Customer service levels are directly related with the costs associated with it. Costs associated with the customer service levels:
- Inventory carrying cost
- Carriage cost
- Warehousing cost
- Order processing
- Information cost
- Lot quantity cost