Tangible benefits include revenue growth, optimized inventory management, etc. Intangible benefits include improvement in quality, improvement in customer satisfaction, and enhanced customer and supplier techniques (Schonberger, 1997).
Outsourcing is nothing but getting certain types of the company done by people who are not actually part of the company (Limitedmanagement.com). Usually, companies outsource certain specific works in which the company is not strong to people who are experts in that particular job. Outsourcing is not a new concept in SCM. Global sourcing is now a competitive requirement of doing business. This perceived survival imperative has created an extended supply chain, as to distance and time, which has a menu of supplier and logistics demands. Directing the supply chain, as to costs, performance, inventory, visibility, collaboration and integration is an imperative for corporate success (Limitedmanagement.com).
Outsourcing in Supply Chain Management means outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.
A recent survey that was conducted on outsourcing revealed certain interesting facts as under (Craig, 2005):
42% outsource half or more of their supply chains. This is a significant percentage and shows the degree of outsourcing acceptance, development and penetration.
While the function or activity is outsourced is broad, 59% outsource supplier management. It also shows recognition that supply chain importance and success begins with suppliers, who can be difficult to manage, especially those thousands of miles away.
56% import some or all of their finished products or materials. This also shows the expanding opportunities for outsourcing of offshore logistics.
Failures in Outsourcing
There may be failures in outsourcing with relevance to the Supply Chain Management. The reasons for these failures are as follows:
Poor project design
Lack of metrics or key performance indicators (KPIs)
Use of improper metrics or KPIs
Not fulfilling expectations of either or both parties
No clear lines of responsibility and accountability
Inability to evolve the relationship from short term to long term and from static to dynamic (Craig, 2005).
Risks involved in Outsourcing
Risk and business are terms which are actually inseparable. Outsourcing is not an exclusion of this fact and there are yet certain ways in which these risks can be handled and mitigated. Quantifying and assigning risk is a crucial factor in outsourcing success. As part of this essay, the risks involved in outsourcing are discussed in two different perspectives, one from the buyer