How global outsourcing strategies impact the supply chain of a business organization?

Introduction

Global outsourcing has a number of associated risks and considerations that need to be considered in developing a strategy to mitigate the effects on the supply chain of that business. The effect that increased outsourcing has had is to increase globalization and the additional management challenges that are associated therewith. As a result there has been an increased awareness and study of the impact of these outsourcing strategies on the supply chain of a global business organization (Prassad & Babar, 2000). These challenges transcend national boundaries and impose greater responsibility on managers in these organizations to account for the impact of outsourcing on the supply chain and to design strategies that take account thereof.

The proposed research aims to explore the impact of these global outsourcing strategies on the supply chain of a business organization to the extent that national outsourcing does not present similar challenges. The central hypothesis of the research will not only account for the impact, but also on the development of strategies to mitigate the risks associated with global outsourcing. To a large extent therefore, this research will revolve around supply chain management strategies as well as relying heavily the integration of global outsourcing strategies and supply chain management strategies in a Multi-National Organisation (MNE).

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Research Question

The research question associated with the proposed research can therefore be succinctly stated as follows:

• To determine the impact of global outsourcing strategies on the supply chain of an organization and the development of supply chain management strategies to mitigate the negative effects thereon so as to exploit maximum benefit from these strategies with minimum risk to the organization.

Literature Review

Global business has been forced into evolution in recent years due to the increased demand for high end products at a significantly lower cost than previously associated with manufacturing and service provision (Gunasekaran et al., 2008). To a large extent the possibility of lower manufacturing costs can be attributed to the increased reliance on global outsourcing that has become a normal part of MNE supply chain processes. Strategic outsourcing as a corporate strategy is concerned with two types of activities, on one hand including the actual activities such as logistics and operations without being a distinct feature of that firm, whilst on the other hand including activities that create competitive advantage for the firm (Quelin & Duhamel, 2003). The increase in outsourcing has necessitated a parallel evolution of supply chain and outsourcing strategies within these organizations to deal with the impacts on the overall business of the organization to the extent that global outsourcing presents challenges related to risk, unpredictability and challenges associated with international supply chain management.

A significant impact on the supply chain of a business organization is the constant and recently novel demand for a supply chain strategy that is flexible in order to deliver their products and services to the global market as fast as possible in order to reduce costs associated with manufacturing and processing. The supply chain design that is required by organizations that rely on outsourcing as a strategy includes the decisions regarding the number and location of production facilities, the amount of capacity at each facility, the assignment of each market region to one or more locations, and supplier selection for sub-assemblies, components and materials (Chopra and Meindl, 2004), as well as selection of facilities at international locations, and the special globalization factors this involves (Meixell & Gargaya, 2005). The design of the supply chain will necessarily reflect the overall objectives of the global outsourcing strategy particular to the organization. Therefore, depending on the needs thereof individual manufacturing or production facilities may have specific supply chain protocols and procedures that are specific to that facility or these may be managed as part of the overall strategy of the business organization with the latter generally being the preferred method. Invariably, this may also depend on the relationship between these outsourced facilities and services, and the controlling organization to the extent that this removes a certain measure of responsibility from the MNE. As such there has been an increased use of a responsive supply chain (RSC) as a model for management of these factors, which encompasses a degree of flexibility in assessing these challenges and responding thereto (Gunasekaran et al., 2008).

There are a number of strategic production-distribution models that have been adopted by the global business organizations and in doing so the effect that these models have on the entire supply chain strategy. Case studies have revealed a number of levels of integration of production-distribution models into the overall supply chain in terms of strategic, tactical and operational integration (Vidal & Goetschalckx, 1997). Essentially, this embodies the decision making processes within an organization with regards to their supply chain with strategic planning reflecting a long-term objectives and decision making processes as one extreme, and operational planning reflecting the short-term, everyday objectives. Tactical planning falls somewhere in between these two extremes, with the overall supply chain strategy of the organization reflecting integration of all three of these planning considerations.

Theoretically, these global outsourcing strategies are formed on the basis of these production-distribution models, however there are associated academic considerations that surround the formulation of these strategies, namely supply chain management, risk management and global logistics management. The successful integration of all of these considerations is essential to the long term success of outsourcing strategies, as the international supply chain presents a certain volatility that is often beyond the immediate control of these organizations particularly with regards to predictability. This is so because there is a dissociation between the corporate headquarters of the organizations and the production facilities, where issues such as labour disputes, disruption of supply chain, political stability and disaster management become key considerations in the development supply chain models (Peck, 2005). As a corporate strategy therefore, strategic outsourcing must consider the impact on the supply chain of that organization in order to optimize performance and as a result there has been complete evolution of the supply chain models, strategy and management in terms of these broader corporate objectives.

Research Design

The current research will be primarily based on qualitative content analysis of current academic literature and reported empirical studies (Neuendorf, 2002). The purpose of this method will be to determine current practice in the global market in order to accurately reflect the role played by global outsourcing strategy in the development of supply chain models and corporate strategies . This will necessarily take account of quantitative research factors, however this speaks more to a certain measure of pragmatism that is required by the researcher in conducting this research rather than a shift towards quantifiable research methods. These research methods are justified in terms of the current research objectives to the extent that these measure the current state of global outsourcing strategies on business organizations representing a shift in global strategy rather than focusing on the impact on a specific organization.

Reliability and validity are central concerns for this research, however through the extraction of repeated themes and practices, concerns thereof will be mitigated (Joppe, 2000). The research however is limited to the extent that it relies on secondary sources that are not base accounts of the current practices, but rather contexts that have been analysed and subsequently reported on by a line of academics. The availability of reliable sources is a secondary concern for this research and may present a significant challenge for this research due to the fact that the validity hereof relies on reporting of the actual activities of corporations globally. This is further limited by the availability of sources as being industry specific. The limitation that this presents is that it makes it difficult to present a cohesive model of supply chain design and management to the extent that the literature available on the subject is often industry specific. This means that when collecting data, one must ensure that this is drawn from a variety of sources representing a cross section of industries, both manufacturing and processing, and service-related.

Data collection will be undertaken in a purposive manner, where the data collected representing the current practices and underlying theoretical considerations will be the foundation of generalisations used by the researcher as the basis for the academic opinion presented therein. Purposive sampling is the sampling method that is used for qualitative content analysis, because the purposively selected texts inform the research questions being examined (Neyman, 1934). By selection of data in this way, it will be possible to answer the research question in a manner that is both relevant and directed, ensuring that concerns about validity and reliability are met. Furthermore, this method of data collection will ensure that only relevant information is included in the study rather than focusing on subsidiary issues that may not reflect the relevance of these strategies in terms of global motivations. Coupled with the methodology of analysis being qualitative, purposive sampling further ensures relevant inclusion and therefore speaks to the validity of the research as representative of global business phenomena and does not limit this application to a region, organisation or sector.

Conclusion

Outsourcing is a corporate decision that lies in the policy and business strategy of an organisation, as it modifies the firm’s boundaries as a legal entity and generally involves corporate decision makers at different levels of the supply chain both locally and internationally. It affects company-wide resource allocation policies and asset management practices, as these outsourcing decisions often involve several divisions in large, diversified companies. The understanding and development of these strategies and the effect that these strategies have on the supply chain of a company, both at the level of design and implementation thereof, but also in the management strategies of the associated risks and operational requirements that global outsourcing presents to these companies, is an integral part of the operations of business organizations for without these considerations the benefits associated with strategic outsourcing will be lost. Careful management of these objectives and the supply chain of these companies is essential to the success of these operations and the overall success of the organization.

References

1. Chopra, S. & Meindl, P. (2004) Supply Chain Management: Strategy, Planning and Operations (2ed) Prentice Hall: NJ
2. Gunasekaran, A., Lai, K. & Cheng, T. (2008) “Responsive supply chain: A competitive strategy in a networked economy” The International Journal of Management Science, 36, pp 549 – 564
3. Joppe, M. (2000) The Research Process [published online] Available on: http://www.ryerson.ca/~mjoppe/rp.htm [Accessed 13 October 2012]
4. Meixell, M. & Gargeya, V. (2005) “Global supply chain design: A literature review and critique” Transportation Research Part E, 41, pp. 531 – 550
5. Neyman, J. (1934) “On the two different aspects of the representative method: the method of stratified sampling and the method of purposive selection” Journal of the Royal Statistical Society, 97(4), pp. 558-625
6. Neuendorf, K. A. (2002) The Content Analysis Guidebook. US: Sage
7. Helen Peck, (2005) “Drivers of supply chain vulnerability: an integrated framework”, International Journal of Physical Distribution & Logistics Management, 35(4), pp.210 – 232
8. Prasad, S. & Babbar, S. (2000) “International operations management research” Journal of Operations Management, 18, pp 209–247
9. Quelin, B. & Duhamel, F. (2003) “Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks” Journal European Management Journal, 21(5), pp 647-661
10. Vidal, C. & Goetschalckx, M. (1997) “Strategic Production-Distribution Models: A Critical Review with Emphasis on Global Supply Chain Models” European Journal of Operational Research, 98, pp 1- 18

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