This section is the second last section (whew!) of Exam 3 and extremely interesting and topical when you think of the current election season and employment problems in the US. How do you decide to outsource a product or service? Should you outsource or insource?
The difficulty in these sections of Exam 3 is that more than one answer appears right. So please go by the answer that appears the best. Also do not assume that the question was framed yesterday and is considering all the political discussions around outsourcing (lose US jobs) or insourcing (gain US jobs).Also this section is about outsourcing and insourcing first from the organisation's viewpoint and then from a global outsourcing (or offshoring)point of view. Naturally if you are say in the high cost East or West coast US and outsource work to relatively low cost states in the South or Mid-West US you probably do not lose too many jobs. But if you outsource globally, there is a problem of losing jobs unless you can speed up innovation while protecting intellectual property.This because innovation creates jobs.But without digressing too much from the core topic of the section...
Your role as a supply manager is to be able to weigh multiple issues (including the very real jobs problem, talk about taxation benefits of insourcing) and be able to carefully weigh all angles and take a considered point of view that is the better options of all. So here goes some key points of this section with the assumption that all the discussion is not about offshoring, but merely moving the task out of the organization:
- What can you outsource? You can technically outsource some task that you can split. Let's say your organization does engineering drawings at a high cost location in North East US. You can get part of the drawings done from a lower cost location in the US where Engineers might have lower pay. You can think of the outsourced task as a "module" that is done outside the organization by a contractor's employees and brought back for integration. So you must have the right type of engineers who are able to receive and integrate the work.
- Core Competence: The other question is how close to the core competence of your organization is this task? As a supply management leader you are expected to have clear thinking about how to manage outsourcing if it is close to your organisation's core competence and then the supplier or other competitors pick up all your skills and secrets.The latter problem can be huge in offshoring or global outsourcing.
- Types of Control: You need to figure out what types of control are needed. When the suppliers are well developed you can just work out supply level agreements (SLA) in the contract. Where suppliers have to be developed you need to be able to hand-hold and bring suppliers and your internal users on the same page.
This topic is a vast topic on which you must have had some experience, do talk to colleagues and get a better sense of what steps organizations take in these matters. In the exam just stay within the boundaries of the case situation i.e. don't imagine or assume additional stuff that you know or have experienced and you should be fine.