Outsourcing as One of the Biggest Phenomena in the Economic World - Essay Example

?Explore the potential problems and issues that an organization would need to consider when re-sourcing requirements back to their home country and how these potential problems might be addressed or mitigated by the procurement function Introduction Outsourcing became one of the biggest phenomena in the economic world in the past few decades. It became the best and most economically viable option for businesses who were seeking to reduce the cost of production and increase their profit in order to be and stay competitive. Outsourcing has mostly been made to the Far East region, including Vietnam, Malaysia, Philippines, and other countries in Asia like India and China. In recent years however, the benefits of outsourcing have decreased due to increasing costs of production in Asia, long-lead times, poor communication with Asian countries, large quantities for minimum orders, as well as poor quality of products (Green, 2013). Due to these issues, outsourcing countries have made attempts to re-source their production back to their home countries. Undoubtedly, major challenges are foreseen in on-shoring or re-sourcing, not the least of which involves loss of profits, which to any business is always problematic (Green, 2013). Still, businesses have gradually initiated efforts to re-source their production to their home countries mostly because they believe it would be the better option for them in the long run. This paper shall now explore the potential problems and issues than an organization would need to consider when re-sourcing requirements back to their home country and how these potential problems might be addressed or mitigated by the procurement function. Body There are different problems which have and will likely emerge for businesses seeking to re-source or in-source their production processes. In the information technology business for example which the United States has outsourced to different countries, one of the challenges include the difficulty of finding the right location for the production process to be in-sourced (Williams, 2012). As will all types of business, information technology processes require the right kind of climate and the right combination of elements to succeed. Under these conditions, the most productive and appropriate workforce must be available to the business in the area where it would decide to in-source its production process. This would imply the importance of some elements of IT skill in the related area, alongside an effective population having the right attitude to flourish in careers related to IT (Williams, 2012). The location need not be in the cities or metropolitan areas, but an area which is still big enough to support the logistics of its production processes. The chosen area must also be low-cost (Qu, et.al., 2010). In general, areas which are the most efficient sources of modern technology have become very expensive areas to reside in; as such, wages for these areas are also expectantly higher than other areas. Under these conditions, it would be difficult for the businesses seeking to establish new re-sourcing areas to achieve profitability without having to sacrifice either the availability of the best technology or the lower wages of the employees (Hirscheim, 2000). The importance of securing an educational system which is responsive to the needs of the industry is also a challenge for these businesses. A significant decrease in IT graduates has been observed in the past decade and some areas have even eliminated IT education from their curriculum. The challenge for these corporations would be to revive the enthusiasm of the young population in order to be more responsive to the needs of these businesses and to work out technology issues (Williams, 2012). General Motors has recently considered relevant moves in order to secure insourcing of elements of its production process, mostly bringing back work to Austin, Texas (Thibodeau, 2012). Its insourcing move was however very much challenged with the limited relevant skills needed from its new employees and since Austin, Texas had more people who potentially had the skills, the company chose the area to initiate its insourcing activities. Still, the resourcing of the organization presented major challenges in the rebalancing of employment, mostly in terms of expanding the new capabilities of workers (Thibodeau, 2012). Issues in limited available skills in the home countries were also observed for Caterpillar, Inc. with the company encountering issues in the recruitment of employees with the necessary and specific skills they need in undertaking some activities (Shacklett, 2012). Training costs also represent significant investments for the company, even at higher costs for the home countries as compared to foreign countries which often allowed for cheap labour and lower training costs (Shacklett, 2012). Derek Hill (2012) with Advanced Technology Services mentions that re-sourcing production processes and manufacturing elements back to the UK represents various challenges, mostly in terms of skills, especially in relation to maintenance. Even with unemployment levels being at 8% in 2012 alone, there are a good number of apprenticeship positions which have not yet been filled; moreover, the level of skills of individuals in manufacturing firms are not within effective rates needed for efficient production (Hill, 2012). A significant concern for businesses wanting to in-source is the rising cost of raw materials, and other business activities including transportation. The complex processes relating to the supply chains are also making the transition to in-sourcing more complication, often affecting considerations for plant locations. With all these costs which companies have to handle, these companies have also realized the significant burden they have to bear in opting for in-sourcing (Hill, 2012). There are also hidden costs of offshoring which have to be borne now under in-sourcing. For one, most local governments issue operating permits for businesses by demanding employment and supplies to be sourced from their areas. The local supplies and employees may not possess the right type of skills or products which are crucial in ensuring quality production processes for the business (Hill, 2012). Apple, Inc. has also started the wheels into insourcing its production process. So far however, it could only bring home some of its production elements, but majority of its production processes were still firmly rooted abroad (Spaeth, 2012). The company has invested close to $100 million in order to accommodate the insourcing process, however, such investments can only cover a small part of the production process. There are also issues on whether Apple is only indicating such intentions for insourcing as part of its feel-good publicity in order to counter reports of the unfavourable working conditions in its factories abroad. Still, the move of Apple represents a possible trend in insourcing which seems to be gradually gaining popularity. For the manufacturing industry, challenges are also expected in relation to the costs involved in the insourcing of the production process because undoubtedly, the costs will be higher for home countries (Oijala, 2013). These companies would be confronted with other countries like China who are able to manufacture products, like textiles, for significantly lower costs. As such, China is able to sell its textiles for much cheaper prices and the home countries would have difficulty meeting the costs of production while still marketing their products at lower prices (Oijala, 2013). The employment scene has also changed in the years since outsourcing became the trend. For one, workers are now also required to possess expertise in their work, being allowed to function and operate advanced machinery for their companies (Caputo and Palumbo, 2005). As such, the challenge for businesses is on how to find employees who do possess the expertise without having to undergo major trainings to reach expert levels. Finding these workers can be a major challenge in local communities or within their companies considering that their employees or other available applicants have not utilized these tools and technologies for a long while (Caputo and Palumbo, 2005). Another challenge in re-sourcing the production process for businesses includes issues in sub-optimal knowledge transfer (Deloitte, 2013). For most outsourcing processes, clients often include terms which would ensure that they can hire in-scope employees from the outsourced at times when the contract has been ended for due cause. This policy can help make the transition easier in times when in-house transition shall be applied. However, without such provisions, the client organizations may find it difficult to gather and strengthen the much needed staff in order to direct the work back into the company (Silverstein, et.al., 2007). This issue on limited policies can impact on insourcing options, even where there may be no reason to consider insourcing. The challenge in insourcing also relates to the need to secure internal capabilities. Mostly in relation to instances where work has been outsourced for quite some time, client organizations may not have retained capabilities, including tools and methodologies for specific production tasks to be insourced (Froehle and Metters, 2004). For example, an automobile company which has long outsourced its ability to build engines to other countries may not have retained such ability to build such engines or may not have trained its people to build such engines. In considering in-sourcing its production processes, it would be greatly challenged to train people to build its engines as well as to come up with all the necessary tools and resources to build such engines (Drauz, 2013). Although the knowledge transfer can be secured using the transfer of in-scope staff, the development of other skills, including technology management can be a difficult challenge for the company to meet. Cost increase is also another challenge in the in-sourcing of production elements back into the home country. The expected gains coming from outsourcing programs may not actually be realized by these businesses (Drauz, 2013). However, in some instances, the results of outsourcing and re or in-sourcing may still be more cost effective. In effect, shifting the work in-house may lead to higher costs, especially in the first few years of production, especially as the company would have to make capital investments in order to ensure that it has the right equipment, the right personnel, and infrastructure to efficiently handle production activities (Jenster, et.al., 2005). Repatriation of the production process to the home countries can also create challenges in coordination as well as timing mostly in terms of ensuring continuity in services, specifically for resource providers which are losing their business (Frenkel, 2013). Repeated insource issues relates to failures in coordinating transition processes in relation to sufficient supportive contingencies. The lack of internal intellectual capital can be a major issue for companies which have oursourced (Frenkel, 2013). A usual reason for insourcing transitions failure relates to the under-estimation of operations. Most businesses do not actually realize that they need to draw in new talents. These companies need to consider whether they can protect their main resources and talents realistically, offering them with the necessary incentives to stay in the company (Jackson, 2012). It is not however only about whether the human resources department can recruit and manage the new talents coming in, it is also about whether the organizations have the right tools and resources in the marketplace, as well as the right tools to secure the necessary skills in sufficient volumes in resources within the company (Jackson, 2012). Businesses must evaluate markets where they are seeking to establish data and delivery areas, evaluating the talent pool and the available companies who are recruiting in these areas. It is also a major challenge for companies to establish the rights needed in order to retain employees which are presenting carrying out work for their service providers, including those who can be recruited to conduct in-house activities (Gopal, 2012). The service providers usually do not object as they also want to eliminate some personnel and are often happy to have new employers for these personnel without having to seek alternative work for them. In relation to technology, moving to a different venue or setting, evaluating capacities, and managing databases would require the most resources and infrastructure. It is difficult to move data from service providers (Gopal, 2012). There is a need to evaluate the complexities within the environment in order to establish what functions must and must not be insourced. This can impact on suggested schedules for insourcing activities. Furthermore, companies must assess the infrastructure which manages its environment by evaluating variations, the different platforms and related applications, as well as image forms. Since service providers may possess the infrastructure, companies may have to establish their own infrastructure (Frenkel, 2013). This necessity is based on the volume and the intricacies of the data which is observed within the service provider’s infrastructure, and whether or not it can actually be transferred. Moving such infrastructures in-hour and then moving also the data related to the project can be a complicated process. It is important therefore to establish how the data processes are being outsourcer and evaluate what would be needed in order to secure transfer. Repatriation would also be based on whether the company contract or policy would cover the transition assistance policies. This can be an issue where the contract does not have transition assistance policies, with the service providers not wanting to assist due to the fact that it is losing the company’s business (Frenkel, 2013). The problem for the insourcing company would be to provide incentives in order to get providers to cooperate (Jackson, 2012). Engaging the providers with possible project-based activities is one of the options which can be used in these cases. The costs would likely be higher for companies, but the support of these providers is also essential to the insourcing company (Frenkel, 2013). The support is also essential in order to ensure that the best resources and personnel of the provider outsource companies would not be lost to other accounts. Therefore it is important to call for the main personnel and supervisors in order to ensure project retention. Other options in maximizing insourcing are selective repatriation. Companies can evaluate insourcing based on a work basis project, using service desks, desk support, or personnel management (Frenkel, 2013). Under these conditions, the essential personnel and resources may be brought in to the extent that they can be used for the project or contract. Other options and decisions can follow based on performance and efficacy in production processes (Gopal, 2012). Selective repatriation can go on for a longer duration, mostly based on trends following the success of decision-makers and personnel. The procurement function can help resolve these challenges in insourcing by procuring or acquiring the necessary resources, skills, and tools which the company can use in order to adapt to its new and its additional functions. This function would mainly be a financial function, supported by sufficient budgeting, and the willingness for the company to allocate significant funds in order to perform, acquire, and implement new company functions (Weele, 2010). The procurement function also helps make insourcing possible by helping identify what a company would need in order to successfully carry out insourcing. It would also help identify the suppliers who can implement the new functions (Weele, 2010). Communicating with the supplier would follow, along with negotiation. Liaising with the supplier would also help assess the ability of the company to secure and promote new functions (Weele, 2010). In the end, the procurement function would help support the insourcing process very much like a new aspect of management for the company. Conclusion In the current economic setting where outsourcing is losing its appeal among businesses and corporations, re-sourcing and insourcing production processes has become an option which seems to present significant possibilities for most businesses. However, it is also an option which carries various challenges, mostly challenges relating to logistics and maximum profitability. Logistics include the burden and challenge of establishing infrastructures which would is adequately equipped to handle the production process to be in-sourced back to the home country. The personnel and the equipment have to be made available to the company in order to sustain the production process and demands. For some corporations, putting up these infrastructures and hiring the expert personnel may be a major challenge they cannot meet without bearing significant costs. In the end, the costs of setting up the infrastructure may still be equivalent to the costs in outsourcing the production processes. Under these conditions, the profitability of the venture relating to in-sourcing may be reduced or even totally lost. The very thing which the business may be trying to avoid may still be an issue in its in-sourcing option. In order therefore to truly maximize the benefits of in-sourcing, the necessary processes and solutions to the challenges and barriers presented above must be addressed and managed with the lowest possible cost for the business. References Allan, C., 2013. More UK Manufacturers Head for Home. Supply Management. Available at: http://www.supplymanagement.com/news/2013/uk-firms-look-at-bringing-manufacturing-home [Accessed 29 December 2013]. Caputo, A. C., & Palumbo, M. (2005). Manufacturing re-insourcing in the textile industry: a case study. Industrial Management & Data Systems, 105(2), 193-207. Deloitte, 2013. From Bangalore to Boston: The trend of bringing IT back in-house. 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