Quicktime Telecoms - Case Study Example

QUICKTIME TELECOMS CASE STUDY REPORT by + Table of Contents Table of Contents 2 Introduction 3 Supply Chain Risks associated with Outsourcing to Shahida Industries 3 Methods of Assessing Risks 8 Conclusion and Recommendations 9 References and Bibliography 10 QUICKTIME TELECOMS CASE STUDY REPORT Introduction Environmental instability, indeterminate supply and demand, and unforeseen interruptions are common challenges that face companies in this modern world. This has led to a greater intricacy and time sensitivity of supply chains (Zhao et al., 2013). This is especially the case with QuickTime that has employed a lean strategy in its business operations. This lean strategy has seen it rely on only a sole supplier for its product supply needs. It has also outsourced Shahida industries as it believes that it will help to cut down on costs while improving on its profitability. Its key objective is to improve on its operational efficiencies while cutting down on the costs. The discussion that ensues is therefore going to give an analysis of whether QuickTime was able to achieve its objective by using this strategy. This report is arranged as follows. First, it gives an introduction of QuickTime’s strategy and its main objective for outsourcing; second, it gives an analysis of the supply chain risks associated with QuickTime’s outsourcing to Shahida industries; thirdly, it provides a method in which QuickTime would have assessed the risks involved in the procurement decision to Shahida industries and lastly, it gives a conclusion to the study as well as the appropriate recommendations, that is, the alternative supply solution that QuickTime would have made use of for its supply needs. Supply Chain Risks associated with Outsourcing to Shahida Industries QuickTime Telecoms is faced with a myriad of supply chain risks associated with outsourcing to Shahida industries. The supply chain risks are a result of either factors at the centre of the organization or peripheral environment (Goh et al., 2007). Tang (2006) classifies the supply chain risks as operations and disruptions risks. The operations risks are a consequence of inherent uncertainties that exist in the supply chain. These uncertainties would be in the demand, supply as well as costs of the outsourced product or service. On the other hand, the disruption risks are triggered by man-made or natural catastrophes. Both the operational and disruption risks can be responsible for severe distractions to the operations of the firm in question (Chopra and Sodhi, 2004). The company, QuickTime Telecoms, used the services of an agent (or broker) Offshore Sourcing and Select (OSS) to develop sources of supply from China. It is important to note that one of the operations risks facing QuickTime is the fact that they made use of an agent, OSS. This is a major risk despite the fact that OSS had promised to achieve grander control of import costs as well as the general trustworthiness of the supply arrangements with the Chinese suppliers. QuickTime took a very big risk as they did not take their time to investigate the credibility of their agent, OSS or even the reliability of their supplier, Shahida industries. These denied them an opportunity to have a direct contact with their main supplier which would have helped them a great deal in identifying the possible risks that would have arose. Had they not made use of OSS as their agent, they would have made a point of doing a preliminary site visit to Shahida industries and appropriately analyzing it. The use of an intermediary is equally not a good idea as it is both costly and risky (Cousins, Lamming & Bowen, 2004). One of the main objectives of QuickTime is to reduce on its operational costs. This is actually the reason that it sought to outsourcing. This objective is likely to fail if QuickTime makes use of an intermediary. The agent will need to be paid for their services, something that would have been avoided had they not been there. It is also risky to make use of an agent as sometimes it is very difficult to assess their credibility (Yates & Stone, 1992). You would be dealing with fraudsters who will only assist in making your company to make numerous losses as they are likely to drain money out of the company. One of the disruption risks that QuickTime faces is the cost of supplier performance. It is clearly indicated that the February shipments due from Shahida industries were not delivered causing lost sales for QuickTime as their customers decided to cancel their agreements and use other suppliers instead. Despite the fact that the managing director of Shahida industries apologized for this delay, this did not help to cover the losses that had been occasioned to QuickTime. QuickTime not only lost revenue, but it also lost its customers. The customers would have opted out to the competitors of QuickTime making it even more vulnerable to external competition from the other suppliers. It is equally possible that the loyalty that the customers had toward QuickTime would have been lost in the process. The customers would have doubts on the reliability of QuickTime to supply them within the scheduled times as they are also in business and time is of the most essence in any business dealings. This is therefore a major setback that only leads to losses. It is also indicated that the February deliveries were eventually delivered in the third week of April. This is such a long period of time considering the time factor that is of essence to business. The purpose of those products would have become obsolete once they are eventually delivered to the customers (Pujawan & Geraldin, 2009). This notwithstanding, the fact that the customers opted out for other suppliers means that they no longer wanted the products that had just been delivered to QuickTime. It therefore means that the investment that QuickTime used to buy the products had gone to a waste as they were no longer needed. Even if QuickTime would have found a market for the products, it is most likely that they would sell them at very low prices that they had initially considered. This only aids in making QuickTime to make more losses. It is also noteworthy that the next consignment delivered to QuickTime in May was not only late, but the stock supplied was damaged. This is a further loss to the company as no customer would be willing to purchase a damaged consignment. To this point, it can be properly argued that this risk of cost of supplier performance made QuickTime to lose both sales as well as the value that its customers had had on it. The other operational risk that faces QuickTime is that of broker not delivering in the supply chain when and what they say they will. From the case study, it can be pointed out that QuickTime placed its purchase orders through the use of their agent, OSS. In November, initial purchase orders were placed via OSS for the first batches of production for both laser transmitters and optical receivers. This saw QuickTime receiving delayed orders that had defects in the products with the exclusion of the first orders were received with the absence of any defects in the products or delays in supply. OSS was not able to keep its promise of delivering in time from the Shahida industries. The products that they also delivered had defects. This made QuickTime to lose both the money that they had used to purchase the products as well as their customers. With all these delays and defects, the customer/market base of QuickTime reduced drastically. The narrowing of a market base to any company is very critical as it is from the market that its profitability is enhanced (Faisal, Banwet & Shankar, 2006). It is even much worse when the company losses their customer value as they will only be assured of heading to major financial crisis. The fact that sales are lost is equally critical as it is these sales that enhance the profitability that the company projects to make. There is also the operational risk of opportunism, ethics, morals and sustainability. This is manifested by the fact that QuickTime did not have control and oversight of their supplier, Shahida industries. The risk is also aggravated by the fact that their supplier was not a local one but a global one as it was based in China (Prater, Biehl & Smith, 2001). QuickTime had no way of assessing whether their supplier, Shahida industries had ethical values in its business for example in the manner and amount of wages that it pays it works. This is very clear because QuickTime heavily relied on their agent, OSS and they did not bother to do an analysis of their supplier or even to pay them an on-site visit. The risk of relying on an intermediary or a broker is therefore a very grave one. This is mainly due to the fact that the company loses the opportunity to have first-hand information on its supplier which would have enabled them make an appropriate choice of whether to purchase from them or not. It also denied them the opportunity to assess the level of the risk that they were putting themselves into before making a decision to be fully committed to Shahida industries as their supplier. The risk only became apparent when the manufacturing manager, procurement manager and managing director of QuickTime made an impromptu visit to Shahida industries. They were shocked at the working conditions that the supplier’s personnel worked under as well as the age of the female workers employed as many appeared to be of school age. This portrayed that Shahida industries never made use of ethical values in its working environment and it is therefore unlikely that it would make use of ethical values when making the suppliers. A lack of ethical values is also manifested when the QuickTime delegation to Shahida industries’ finished product area revealed packages marked to be sent to both Quintec and AB Telecoms, QuickTime’s competitors. This is extremely unethical of Shahida industries to be supplying to competitors. This is because the other competitors were likely to find out the purchases that QuickTime was making and hence be placed in a better position to increase their competition against it. This is a very big risk as the competitors would have taken this opportunity to purchase better products so as to capture the customers that belong to QuickTime. It is also clear that the sustainability of Shahida industries was short-lived considering the working conditions of its employees as well as its lack of ethics in its business operations. This risk also added to another risk for QuickTime of losing their competitive advantage. This actually happened as Shahida industries violated the intellectual property rights of QuickTime by supplying the same products to its competitors. Lastly, it is the risk of having a sole supplier (Christopher, Peck & Towill, 006). It is clear from the case study that the only supplier that QuickTime had at their disposal was Shahida industries. With all the delays and the product defects that were being occasioned to QuickTime, QuickTime had no way of retaining its customers, it did not have any other supplier that they would quickly make use of to resolve their underlying problems. It can therefore be said that QuickTime was literally at the mercy of Shahida industries. This was very unfortunate for them as they had no means of making amends whenever a problem occurred. Methods of Assessing Risks QuickTime could have assessed the risks involved in the procurement decision to use Shahida Industries by using a structural approach. The structural approach is very appropriate as the management of QuickTime would have done a cost-benefit analysis of whether the outsourcing was likely to be of benefit to QuickTime or not. The cost-benefit analysis of the outsourcing would have given the management of a good picture of the levels of risks associated with the outsourcing (Scott & Westbrook, 1991). This would have enabled them to make a decision of whether to consider Shahida industries as their supplier or not. Secondly, with the structural approach, QuickTime would have had a risk register as one of their mandatory documentation in assessing the identified risks. This would have put QuickTime at a better position to monitor and effectively manage the risks. A market research was of equal importance (Prater, Biehl & Smith, 2001). This would have enabled QuickTime to identify the credibility and reliability of Shahida industries. With a market research, it would have been easy to obtain a proper organisational background of the Shahida industries. With clear information, they would not have faced the risks of getting delayed products that also had defects. A market research would have been coupled with a preliminary site visit to the Shahida industries. Lastly, the structural approach is important as it demands a direct contact with the supplier. This way, QuickTime would not have to make use of an intermediary and face the challenges that are involved with the use of intermediaries. Conclusion and Recommendations From the foregoing analysis, it is clear that there are various risks associated with outsourcing. The risks are aggravated even further when the outsourcing is done globally and not locally. As with QuickTime, it has been realized that they faced major challenges. First, because their supplier was a global supplier based in China and they had not done a background check on the supplier. Secondly, they made use of an agent instead of making a direct contact with their supplier. It is therefore important for the management of any company to do a cost-benefit analysis of outsourcing before procuring the same. QuickTime should have made use of a leagile strategy instead of a lean one. This would have seen QuickTime being more proactive in its business and having a wide range of suppliers in which to choose from. This is important as they will be able to gain the credibility of their customers as well as to enhance their profitability. The only disadvantage would be that they will be exposing themselves to more risks. However, with a proper market research, all these risks can be reduced. References and Bibliography Chopra, S. and Sodhi, S.M. (2004), “Managing risk to avoid supply-chain breakdown”, Sloan Management Review, 46(1), pp. 53-61 Christopher, M., Mena, C., Khan, O. and Yurt, O. (2011), “Approaches to managing global sourcing risk”, Supply Chain Management: An International Journal, 16(2), pp. 67-81 Christopher, M., Peck, H., and Towill, D. (2006), “A taxonomy for selecting global supply chain strategies”, The International Journal of Logistics Management, 17(2), pp. 277-287 Cousins, P., Lamming, R.C. and Bowen, F. (2004), “The role of risk in environment-related initiatives”, International Journal of Operations & Production Management, 24(6), pp. 554-565 Faisal M.N., Banwet D.K., and Shankar R. (2006), “Mapping supply chains risk and customer sensitivity dimensions”, Industrial Management & Data Systems, 106(6), pp. 878-895 Goh, M., Lim, J.Y.S. and Meng, F. (2007), “A stochastic model for risk management in global supply chain networks”, European Journal of Operational Research, 182, pp. 164-173 Mehta, A., Armenakis, A., Mehta, N. and Irani, F. (2006), “Challenges and Opportunities of Business Process Outsourcing in India”, Journal of Labor Research, 27(3), pp. 323-338 Prater, E., Biehl, M., and Smith, M., (2001), International supply chain agility – tradeoffs between flexibility and uncertainty”, International Journal of Operations & Production Management, 21(5/6), pp. 823-839 Pujawan, I.N., and Geraldin, L.H. (2009), “House of risk: a model for proactive supply chain risk management”, Business Process Management Journal, 15(6), pp. 953-967 Scott, C. and Westbrook, R. (1991), “New strategic tools for supply chain management”, International Journal of Physical Distribution & Logistics Management, 20(1), pp. 23-33 Tang, C.S. (2006), “Perspectives in supply chain risk management: a review”, International Journal of Production Economics, 103, pp. 451-458 Yates, J.F., and Stone, E.R. (1992), “The Risk Construct,” In J. Yates (ed.), Risk Taking Behavior, New York, NY: John Wiley & Sons, pp. 1-25 Zhao, L., Huo, B., Sun, L., and Zhao, X. (2013), “The impact of supply chain risk on supply chain integration and company performance: a global investigation”, Supply Chain Management: An International Journal, 18(2), pp. 115-131 Read More