Outsource R And Supplier Need example essay topic

Outsourcing Retail Partner: A Big Issue for Home Appliance Manufacturers in China Introduction Home Appliance manufacturers in china have made great progress accompany the fast development of the consumption of home appliance in the whole nation. There are many native home appliances manufacturers and foreign manufacturers especially those who come from Japan and South Korea, contest for this huge market. The competition among them is extremely scorching. To occupy the market, techniques, finance and management are un doubt tools for competing. However, the difference of those three elements among the manufactures become less and less. So another field was focused by those manufacturers and many issues arose.

That is retailer. It is very difficult for those manufactures to compete with so many competitors in this big country by only their own branch representatives. Outsourcing retailer become absolutely important. However, common retailers can! |t help too much. What they need are outsourcing retail partner who keep stable relationship and supply long term retail service to them. The benefits of outsourcing retail partners are obvious but how to outsource is quite complicate and is the main issue will be discussed.

Literature review 1. What is outsourcing! The definition of outsourcing 1. The process of transferring the responsibility for a specific business function from a employee group to a non-employee group (Zhi wei, Kathy, Joseph, 2001) 2. The outsource could be defined as a service outside the company acting as an extension of the company's business but responsible for its own management, while outsourcing could be defined as employing an outside agency to manage a function formerly carried on inside a company (Rother y and Robertson, 1995) 3. A transfer of an administrative responsibility to an outside organization, an arrangement that changes both service delivery and internal staffing patterns.

Contracts with consulting firms, however, are also viewed by some as a form of outsourcing, particularly when close ties develop in long-term relationships. (Johnson and Cox, 1997) Others describe outsourcing as! SS the practice of handling over the planning, management and operation of certain functions to an independent third party!" (Auerbach, 1996).! SS Finding new suppliers and new ways to secure the delivery of raw materials, goods components and services, by utilizing the knowledge, experience and creativity of new suppliers not used previously (Thames, 1994) 2.

The benefits of outsourcing a supply partner To know the reason why the home appliance manufactures need to outsource retail partner. As Partner outsourcing is only a part of outsourcing, we need to find benefits or advantage gained from outsourcing and we can see all the benefits of partner outsourcing from there. Johnson (1997) gave some reason for outsourcing: f"U Improve company focus: Outsourcing lets the company focus on boarder issues, while having operational details assumed by an outside expert. f"U Access to world-class capabilities Outsourcing providers can bring extensive world-wide, world! Class capability to meet the needs of their customers. f"U Accelerate re-engineering benefits Outsourcing is, in effect, the management tool-business re-engineering process"U Share risks An organization can share risks in investment with the outside service providers Johnson (1997) also indicates that outsourcing can f"U Free resources for other purposes"U Make capital fun's available. f"U Reduces and control operating costs Lonsdale and Cox (1998) also pointed that outsourcing can convert fixed costs to variable benefit from a supplier's investment and innovation. What's more, Latimer (1994) think outsourcing also considerably improves the speed at which a firm can get its product to market. The key objectives of partnership outsourcing are: minimise total costs, obtain competitive advantage and maximis e product & service development (Crocker 2004).

Obviously, they can be achieved from the benefits by undertaking the process of outsourcing. 3. Make a decision Although there are plenty of benefits of outsourcing, not all firms need outsourcing. A firm not only need know the benefits, but also need to know if the firm need outsourcing partner (Frost, 2000) The first step is to determine the strengths ad weaknesses of the organization seeking a partner.

The strengths are the qualities which that organization can contribute to the relationship; the weaknesses are those qualities which should be offset by the strengths of a partner. When seeking a partner with the appropriate qualities, it is important to assess how these qualities will develop over time. Partnering is a long term relationship and there is little point in selecting partners whose strengths are not likely to endure ad improve (Auerbach 1996). 4. How to outsource a supply partner To implement the process of outsourcing, there are many different method and steps, but many of them concern the similar contain as Soli man (2003), Anthony (2004) and Embleton (1998) suggest that outsourcing at least should has three steps: f"U Strategic analyse f"U Supplier selection and"U Relationship management 4.1 Strategic analyse To establish analyse, two models can be the tool to clarify the position of the both side between customer and supplier. Firstly, the Kraljic's (1983) model is widely used for customer to clarify the position of themselves.

The model can also expound the relationship between customer and supplier. The service or products that the customer needs to outsource can be clarified into four kinds of positions by Kraljic's matrix. c^1. Customer PositoningCritical: For these items, only one source of supply is available. (Crocker, 2004). Any interruption would be very detrimental to the business. Usually this type of product or service represents a high share in the cost price of the end product.

Communication and interaction between subcontractor and supplier are usually intensive. The strategy for the company should be builds a strategic alliance with selected suppliers. Also, company should monitor the market closely and manage existing suppliers to ensure that they continuously improve. Other tactics such as medium / long-term contracts; strong partnerships; continuous review; contingency planning; supplier development; global sourcing and so on, can be considered. Leverage: Leverage products or service in general are high value and can be obtained from various suppliers at standard quality grades. In this item, customers generally have significant bargaining power with suppliers due to the competition in the market place which from the large number of potential suppliers (Baily, 1998).

For leverage products or service, company can bargain with suppliers for more discount as the competition among the suppliers. There will be no long-term supply contracts. Also, the company can carry out systems such as e-auction or e-marketplace which give good information about market and supplier. It is beneficial for the company to plan short and medium-term demands as well as to forecast price movements. Bottleneck: the products or service in this item have limited sources of supply, the resource itself may be limited and interruption in sourcing would pose a substantial risk to the business (Crocker, 2004). In general supplier is dominant in the relationship, which may result in high prices, long delivery time and bad service.

However, the value they add in satisfying customers is not substantial. In the short term, company tactics should be to secure continuity supply by negotiation long-term contracts (Baily, 1998). For the long term, firm should find a wider potential supply base (Baily, 1998). Other tactics such as either regional or global sourcing have to be used here to maximize flexibility for the customer. Routine: products or service in this category are low value and low risk.

(Baily, 1998). The low attention should be given to these items. company should make this category product or service's purchasing process as efficient as possible. The strategy for these items should focus on reducing administrative and logistic complexity in order to minimize time and resource. For instance, company can carry out negotiating contracts with single sources and placing catalogues which cover all the items. co.

Supplier PreferencingAs we know that the Kraljic's model has many benefits for the company to manage risks and profits. However, the Kraljic's model only indicates the procurement organizations! | targets who are buying retail service in this article. It doesn! |t explain the approach and attitude of the supplier. One concept is similar to the Kraljic's model and using some of the same thinking from a supplier perspective.

According to Crocker (2004), Suppliers segment the market depends on the attractiveness of the customer and relative value of the business. The market is classified into four categories in terms of development, core, nuisance, and exploitable. f"U The customer in the Development market has low relative of business value with supplier, but attractive to the supplier. In order to expand business and seek new opportunities, the supplier will hope to develop relationship with those customers. f"U The customer in Core market has high value contract relative with supplier and attractive. The supplier usually provided customers with high level of service in order to ensure continuity of the contract. f"U The customer in the Nuisance market has low value contract and not attractive to supplier. Supplier shows little interests to these customers and withdraws in the easiest manner. f"U The customer in the Exploitable market has high volume of sales contract with supplier, but not attractive due to the contracts are not very profitable. Suppliers may use the tactics such as increase price or other methods of adding value from the business without too much fear of losing such customers.

Goff in and New (1997) indicated that through analyse the supplier preference, the company can find whether it is the supplier-preferred customer. It is beneficial for the company to manage the risk and profit. Moreover, it is importance for the company to carry out procurement targeting match with the supplier preference. It is beneficial for the firm to achieve a balanced and realistic portfolio of tactics and strategies, to attempt to achieve effective outcomes. For instance, if the company's strategic critical products or services are being located in the development category, it means the customer positioning and supplier p referencing shows a potential match. Customer should work closely with supplier to develop business and doing other work of mutual interest; if these products or service are in the core category, it is a good match between customer and supplier.

The reason is that the supplier can be a potential partner with customer. They can work together to develop long-term partnership for mutual improvement and strive for world-class competitiveness; if the critical products or services are in the nuisance box, this means the customer positioning is not match with supplier p referencing. Suppliers will show no interests to customer. For the customer, it is high risks due to the strategic critical products service are quite important to customer's company. Therefore, buying company have to carry out tactics of seeking competition; raise attraction and so on in order to close the relationship and try to arise suppliers! | interest to their contract. In summary, we found that customer positioning and supplier p referencing are effective strategies for the customer to keep balance and guide them to analyze their and supplier's position.

Especially for these home appliance manufactures in china, because the retail service is very important for them. They need carefully analyze both sides position before they awarding the long-term contract to outside retailers and building partnership with them (Crocker 2004). Giff i (1998) pressed that the firm also need some other analysis, such as customer and business requirements, spend analysis and future spend analysis. Embleton (1998) suggested that when the strategic analysis is finished, firms can get necessary information about both sides. Then, they can determine the scope of candidates and start the next step. 4.2 Supplier selection After analyzing the position and determining the candidates for outsourcing, firms can start selecting suitable retailers in a relatively smaller group of candidates.

To select suitable suppliers, supplier appraisal is a main and necessary process. Supplier appraisal is a pre-contract activity.! SS Supplier appraisal is situational. What to appraise is related to the requirements of the particular purchaser!" (Lyons and Gillingham, 2003, p 333) The elements buyers should appraise potential suppliers on: The price of the service provided by supplier is a very important concept should be taken into account. So many writers such as Bayraktar (2003), Vokurka (1996) suggest that firm should produce a shortlist consisting of sufficient suppliers to allow a genuine competition to take place. It will encourage the suppliers to reduce their prices and increase their offerings.

However, Lonsdale and Cox (1998) stressed that this method has two important caveats: First, taking the lowest-cost bid, or forcing down all of the bids to a very low cost can be a short-sighted policy. If the bid is too low the winning supplier may simply reduce its level of service after the contract has been won. If there are high switching costs, this can leave the firm with a poor level of service for a considerable period of time. Alternatively, if the supplier has a high dependency on the business of the firm it may be that some months into the contract they get into the financial difficulties.

Second, it is often said by those involved in out sourcing, beware of the suspiciously low-cost bid. Suppliers which present very low-cost bids are often presenting a loss-leader and hope to increase the price later on, either during the contract or at the re contracting stage. The discussion on asset specificity has shown the circumstances which can accommodate the latter. Lawrence and Christopher (1992) also stressed that supplier appraisal shouldn! |t only focus on the price, it is a wider scope of work.

They said if the company is to achieve his objectives as fully as possible, apart from being able to offer a competitive price; the supplier should be dependable and reliable. Bhutto and Hub (2002) pointed out that many important factors in supplier appraisal are difficult to qualify and may require many subjective judgement's when assessing them. Buyers should consider on some more attributes as well. Lonsdale and Cox (1998) suggest some criteria for supplier appraisal. Some of them such as: f"U A capability to supply all around the world"U Evidence of consistency in delivery, service and product quality"U Attitude on total acquisition cost"U The possession of a change culture and a flexible workforce For supplier appraisal, Crocker (2004) also gives a 9 Cs model. They are: f"U Competence For this criterion, the firms should check the suppliers! | qualifications first.

They also need to acknowledge the trading history, reputation and accreditation's of the suppliers. The training and equipment in the supplier's organization can also add marks to their competence. f"U Cost This criterion is a quite important part in the process of supplier appraisal. Some accountancy knowledge is used in this part. Some elements should be taken into account, such as fixed costs, variable costs, break event point, overhead contribution and profit. They should be analyzed carefully to identify the whole costs to award contract to the supplier (Bayraktar, 2003). f"U Capacity The flexibility to some change of orders, the lead time of the suppliers! | company operation and operational statistics in the suppliers! | organizations are very important (Bayraktar, 2003). Management competence (personnel capabilities) Management is a vital input to a successful and profitable organization.

Joseph (2000) pointed out that management ability to control the organization in a suitable manner clearly influences a supplier's performance. f"U Commitment to quality This part is quite important to evaluate the material suppliers, but it is also suitable to be introduced for service suppliers! | evaluation. Choy and Lee (2002) suggested that there should be some model standards as TQM (total quality management), ISO 9000, etc in the suppliers! | organization to guarantee the quality of service. f"U Consistency Firms should focus on the reliability of the supplier. They need check the customer feedback in the history of the supplier to know the supplier's reputation. Suppliers also need to be evaluated that if they have a stable control system and measurement standards as well. f"U Cleanliness (house keeping) Firms need to have a site visit to supplier's organization.

They need know about such as the work management & flow and accident rate, etc"U Control of key processesDavidrajuh (2003), Lo (2004) suggested that Supplier should have ability of controlling some processes as marketing, operations procurement, distribution and quality etc. f"U Cash (financial stability) The financial strength of a supplier is also very important. The buyer can judge a supplier that if they have an ability to meet his commitments. A supplier in a better financial position will provide a better supplier credit. Firms can check supplier from group / holding company, customers they have, references and profitability (Joseph, 2000). f"U Culture and relationship Firms need evaluate suppliers from maturity, cultural fit, shared interests, volume of business, communication aspects and complementary of assets. Crocker (2004) suggests that after a period cooperation with selected supplier by the evaluation, firms also need to do supplier rating process by the firm's vendor rating system. Then firms can select their preferred supplier to award a long-term relationship-partnership.

4.3 Negotiation of contract Baily (1998) revealed that when a negotiation takes place it is usually assumed that there is some conflict of interests between the parties involved. The logic stemming from this is that because of conflict the parties involved will oppose each other in order to achieve their preferred ends. The word! SS opponent!" is then placed in a! SS game!" context where one side will win over the other, and then gain will result from the other's loss. However, make contract with a potential partner, firms need seek mutually advantageous solutions.

It is considerable. This does not suggest that they may each gain greater advantage by collaborating rather than competing. The contract should make a win-win position and benefits for both sides. This can also strengthen the partnership between the!! | and! yen outsourced! | (Abramson & Harris 2003).

4.4 Relationship management Partnerships require time to develop and mature. Ell ram (1995) has suggested that there is a life cycle during which the partnership moves from a development stage through commitment to integration. In the development stage, partnership is being developed and trust built up between the partners. Multifunctional, inter-company teams help to do this. When the partnership has started to tackle substantive issues, there is likely to be more sharing of resources and information and the partnership has entered the commitment phase. The third stage, integration, occurs when trust, dependency and understanding are all high and the partnership is realising real benefits.

Brandes and Lillecreutz (1995) suggest some elements that affirm should try to gain for maintaining and developing the partnership with the outsourced supplier. Share long term objectives and encourage compatible cultures Successful partnering organizations have cultures which are compatible and which strengthen the cooperation relationship. Compatibility needs to be strengthened and cultural aspects which are incompatible, for example adversarial purchasing attitudes, needs to be minimise d or eliminated altogether Trust Successful partnership sourcing depends on there being a high state of trust between the partnering organizations (Nielson, 1998). This because the purchasing organization and the supplier need to work closely tighter if cost is to be taken out and quality built in. for example, the!! | organization might need to reveal to the supplier its future marketing plans so that the supplier may take account of these when planning its investment strategy or its allocation of service or production capacity Similarly, the supplier would need to reveal how it plans to meet its customer needs both with present and future investment and what the effect of any investment will be on cost (Crocker 2004). Mutual acceptance of the concept of win-win within the supply chain There needs to be mutual acceptance of the concept of win-win within the supply chain. For this to happen, outsource r and supplier need to see themselves as part of the same supply chain.

Open book costing Burns (1998) said that a good example of how partnership requires great openness is the use of open book costing. This concept requires both parties to make freely available to each other all the information about their costs. The intention is to work together to reduce and, if possible, to eliminate costs and agreed value engineering programmes are a part of this. It should not be thought that the intention is solely to reduce cost ate the supplier. The outsource r can also be a source of cost to the supplier and thus to the whole supply chain. Programmes to reduce cost look at the cost base of both the outsource r and the supplier and openness replaces the traditional clandestine approach in which most cost information remains a jealously guarded secret with the negotiating parties only reveal information to secure bargaining advantage.

Assessing performance Continuous improvement is the underlying ethos of all partnership relationships. Continuous improvement is not possible without a review process for assessing performance. Cross-functional teams key requirement for the successful implementation of partnering is the use of cross functional teams. This teams need to be replicated at the partnering supplier and eventually both teams may merge (Toni, 1994). Although as noted above conventional contracts are not a feature of partnership arrangements, it is desirable that the parties should agree to a set of general guidelines to regulate the agreement. 5.

The risk of outsourcing Lonsdale & Cox (1998) stressed that there are many risks that outsourcing can bring to firms. As a part of outsourcing, there are also the same risks brought by outsourcing partners"U The loss of core activities Linder (2004) pressed that firms may lose its core activities. The consequence which follows such an act is a significant reduction in the ability of the firm to retain its competitiveness, certainly in the medium to long term. In some instances it will lead to the firm ceasing to exist. f"U Being leverage by suppliers Supplier leverage can manifest itself in a number of ways: a supplier may decrease the quality of work they undertake; a supplier may withhold the latest technology; or, most commonly, a supplier ma act to raise its prices. It will do one or more of these things if it believes it can do so without suffering adverse consequences (Razzaque & Chang, 1998). f"U The loss of strategic flexibility This risk is linked to the dependency issues. Ches brough and Tee ce (1996) revealed that firm can suffer a loss of flexibility by outsourcing in certain circumstances"U Suffering interruptions to supply This may happen when supplier power has been described.

Evert (1994) said if the firm becomes dependent on a supplier then the threat always exists that the supplier may interrupt supply goods or service. As supply partners, in most circumstance firms have to dependent on them, so there are higher risks for partner outsourcing. f"U Receiving poor quality of supply This issue is also linked with dependency. If a firm highly dependent on a supplier, the supplier as described in Kraljic's (1983) model has great bargain power with customer. So supplier is the dominant in the relation. The may provide low level service and ask for high price, etc f"U A fall in employee morale This risk also mentioned by Johnson (1997), if outsourcing is poorly handled, a feeling can soon dominant the firm that nobody is safe, and that management is indifferent about the well-being of its staff. Insecurity on the part of the workforce can be particularly high if there appears to be no pattern to the outsourcing. f"U A loss of internal coherence The effect of outsourcing can threaten the benefits of cross-functional contract and then undermine the internal coherence of the firm.

The firm may also try to save investment in core process technology; the result was a lower in the effectiveness of its core technology (Bardoul & Burt 1995). f"U Confidentiality leaks This is definitely serious in the partner outsourcing. As partners, the both sides of outsource r and supplier must share information in many areas. The firm's supply partner may not only service one customer, but both sides have risk to leak confidential information to both sides! | competitors. 6. Conclusion Outsourcing is a very important activity to all firms.

Outsourcing a partner is more important and has higher risks. The firm need to deal with it very carefully. They need to do careful analysis, appraisal and rating the supplier. To build up partnership with an outsourced supplier is not an easy case; it need long term cooperation and test the relation.

Then outsourcing can bring the firm most of the benefits. Proposed Aims and objectives This article is to explain the important of outsourcing partner by expounding the benefits from outsourcing. It reveals that why a firm need to outsourcing a partner, but it is not the main aim. The main aim is to discuss how a firm to outsource a partner. Some models are used to explain the strategic analyse and then discuss how a firm to select a partner. After building a partnership with an outsourced supplier, how to maintain and develop the relationship with the supplier was answered.

It not enough for a firm to only know the benefits from outsourcing. Some risks were mentioned to give warn at the end of the article. Methodology The dissertation will choose phenomenology methodology in relation to my research objectives. The reason is that the research project is focus on the outsourcing process in Chinese home appliance manufacturers. They involve the issues of strategy and management. Moreover, phenomenology research method is based on the way people experience social phenomena in the world in which they live (Thomas 2004).

That means it is an inductive process from data to theory. Phenomenology methodology is regarded as systematic research method. Furthermore, Wass and Wells (1994) suggest that phenomenology approach has many advantages: (1). Facilitates understanding of how and why. (2). Enables researcher to be alive to changes which occur during the research process.

(3). Good at understanding social processes. In the process of data collection, mainly the secondary data will be adopted, because these secondary data have many benefits for the research. It is saving your time and money and if I need the data urgently, secondary data may be the only viable alternative and they are provided higher quality data than collecting by my own.

What's more, it is beneficial to establish clear theoretical focus for the research projects (Se karan 1984).