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Internal/External Sourcing Strategies Paper

1161 words - 5 pages

Supply Chain Page PAGE 7 of NUMPAGES 7
Week 4 - Internal/External SourcingISCOM 370 - Strategic Supply Chain ManagementApril 12, 2010Internal/External Sourcing StrategiesOutsourcing customer service has become a more common approach for most companies for many reasons with the most important being cost savings. Outsourcing with a sole focus on the cost of goods has been a short sighted approach as there are many under budgeted, unseen costs associated with customer dissatisfaction and loss of product quality. The success of outsourcing strategies have revealed four value added areas that can contribute to a company's competitive advantage, employees, suppliers, and customers.Last year the United States companies spent about $29 billion on outsourcing activity or products (Thomas, 2009). There is no question that outsourcing has become a huge driver for an organization's business strategy. From buying raw materials from other countries to having the most complex variation of off-shoring services, outsourcing is a big part of all organizations' business strategies.Outsourcing strategies are not always successful so it is important to understand all the factors that may influence the company's outsourcing strategy. The basis of outsourcing is the similar to the trade theory in which two or more parties can benefit from the exchange of goods and or services. Cost savings is one major reason why outsourcing and trade are beneficial to a company.There are three major functions within a business; core functions, tactical non-core functions, and strategic non-core functions. The core functions are those that determine what the comparative advantage will be for the organization and the specialized tasks that will make the business unique and yet successful. The tactical non-core functions are considered to be n necessary components of the organization that are usually outsourced, but they do not have a direct impact on the actual core functions. Example of tactical non-core functions could be a call center, accounts receivable, and or payroll. The strategic non-core functions that do have an effect on the organization's bottom line. Examples of the strategic non-core functions could be the branding, the product designs, and or the development.When an organization decides to outsource a part of the company or a function, then fixed costs are being converted to variable costs which will help create a clearer view of ROI. By having a clearer view of ROI the organization can make more efficient decisions and at a quicker pace. On the other hand, the actual suppliers of the good and or service being provided may have a superior cost structure and diversification of their risks.As far as business strategy goes, outsourcing functions that do not compromise the organization's comparative advantage could be very beneficial. A company's competitive advantage is not in that company's yield but in their resources, capabilities, and core competencies (Hoskisson,...

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