326 327
How operations and production work
Supply chain
90%
of firms
worldwide say
outsourcing is
crucial to growth
strategies
EXAMPLES OF BUSINESS TASKS THAT CAN BE OUTSOURCED
Outsourcing Subcontracting work
to another company or buying in
components for a product rather
than manufacturing them
Offshoring Practice of moving
a company’s operating base to a
foreign country where labor costs
are cheaper
Network structure Tasks or
operations are performed by
another company—which may be
in the same country, a neighboring
country, or overseas—within a
network structure of organizations
NEED TO KNOW
1%
Save capital
Frees up capital to invest in
areas for growth
4%
Encourage innovation
Frees up internal capability and
buys in knowledge
and ideas
10%
Increase speed
to market
External expertise
often brings shorter
lead times
REASON
CORE
BUSINESS
Web
design
Computer/
IT support
Research and
development
Manufacturing
Healthcare
services
Customer
support
Tax
preparation
Logistics
Accounting
Payroll
Legal
services
Engineering
Outsourcing certain tasks within a
business enables focus to remain
on core business activities, which
helps generate growth as well as
income. Some tasks are better
suited to outsourcing than others
due to factors including expertise,
how time consuming a task is, and
how much face-to-face time it
requires. IT operations, for
example, can be highly expensive,
requiring expert knowledge and
can easily be managed remotely.
Human resources, however, is
more employee focussed, so
better suited to in-house.
US_326-327_Outsourcing.indd 327 15/12/2014 13:55
Case study: global expertise
Offshoring started in India and today it still leads the way.
The country’s IT and business processing outsourcing
export industries employ more than 2.2 million
people and are worth more than $100
billion. Other regions have different areas
of expertise—for example, Eastern Europe
specializes in IT services.
How it works
Offshoring grew in the 1980s as Western companies
with high labor costs realized they could make
significant savings by manufacturing in countries with
lower wages. Information technology (IT) services
followed, enabled by the internet and global
communications. However, companies are now
rethinking this strategy, driven by factors including
the need to be close to customers, consumer dislike of
overseas call centers, high unemployment in Western
countries after the 2008 financial crisis, global wage
equalization, and growing transportation costs. Some
firms are now nearshoring—for instance, US firms
placing operations in Canada—or reshoring, bringing
activities back to their home country.
Moving jobs outside the country where a company is based is called
offshoring. Either the company employs people overseas to perform
some functions, or work is outsourced to a third party overseas.
Offshoring
Canada
Brazil
MexiCo
Chile
Examples of offshoring
Banking Technology
IT
Key
Financial
services
Design
Back-office
functions
Engineering
Insurance Call centers
Research and
development
Customer
support
Business
processes
Software
Manufacturing
Technical
support
$
US_328-329_Offshoring.indd 328 21/11/2014 14:32
328 329
How operations and production work
Supply chain
Ghana
Russia
China
india
united aRab emiRates
south afRiCa
PhiliPPines
iReland
estonia
ukRaine
Poland
CzeCh
RePubliC
Romania
The Americas and Europe are
India’s largest customers and
account for 60 percent and 31
percent, respectively, of India’s IT
and business processing exports.
Services include financial services
(41 percent), high-tech/telecom
(20percent), manufacturing
(17percent) and retail (8 percent).
IndIa: offshorIng
world leader
malaysia
indonesia
sinGaPoRe
$
$
$
US_328-329_Offshoring.indd 329 21/11/2014 14:32
328 329
How operations and production work
Supply chain
Ghana
Russia
China
india
united aRab emiRates
south afRiCa
PhiliPPines
iReland
estonia
ukRaine
Poland
CzeCh
RePubliC
Romania
The Americas and Europe are
India’s largest customers and
account for 60 percent and 31
percent, respectively, of India’s IT
and business processing exports.
Services include financial services
(41 percent), high-tech/telecom
(20percent), manufacturing
(17percent) and retail (8 percent).
IndIa: offshorIng
world leader
malaysia
indonesia
sinGaPoRe
$
$
$
US_328-329_Offshoring.indd 329 21/11/2014 14:32
Eventual recycling or reconditioning may
be considered at the start of design and
manufacturing decisions.
Reverse supply chain
US retailers Sears and JCPenney were the first
stores to allow consumers to return goods with
no penalty. This pioneering move in the late
19th century encouraged people to shop with them
and helped build a loyal following. British retailer
Marks & Spencer at one time had the most lenient
returns policy in the retail word—until 2005 they
had no time limit on returns, as long as the
customer could produce a receipt.
How it works
Companies have to focus on more than simply bringing
a product to a customer. Now an efficient reverse
supply chain is essential to satisfy consumers,
especially for the growing number of online retailers.
Manufacturers, too, in industries from carpets to
computers, may need reverse supply to recycle
products to meet environmental regulations.
For example, companies have to manage products that
are returned from consumers for a refund; products
that do not sell and are returned to producers from
retailers; or products near the end of their life, where
disposal may be subject to environmental legislation.
Supply chain takes a product to a customer. Reverse supply chain is
the series of activities it takes to retrieve an unwanted or used product
from a customer and dispose of it, recycle, or resell it.
CUSTOMER RETURNS
Companies may have processes in place to
collect used or unwanted items, whether
from the customer or a retailer.
Retrieve
Manage disposal
Please return
within 28 days
Reverse logistics
The cost to companies of reverse supply is enormous.
For example, in the US, statistics from the Reverse
Logistics Association suggest that the annual volume of
consumer returns is estimated to cost $150–200 billion.
This represents about 0.7 percent of gross national
product (GNP) and 6 percent of the US’s total annual
retail sales of $3.5 trillion.
$
US_330-331_Reverse_supply_chain.indd 330 21/11/2014 16:41
330 331
Effective inventory management is critical
to ensure that inbound items are recorded
so the company can keep track of returns.
Items and components are sorted and
separated, ready for reselling, recycling,
or disposal.
how operations and production work
Supply chain
32%
of an item’s original product
value could be reclaimed
as a result of a well-managed
reverse logistics system
Customers expect items to be transported
back to the seller in a straightforward
system, in person or by a delivery service.
Items are carefully checked on return.
If they are to be resold, they must be in
pristine condition.
Transport Receive
Sort
Inspect
NEED TO KNOW
Electronic waste (e-waste)
Electrical or electronic devices
that are unwanted, do not work,
or are obsolete
Warehousing Administrative
and physical functions necessary
for storage of goods, either for
selling or retrieval
US_330-331_Reverse_supply_chain.indd 331 21/11/2014 16:41
330 331
Effective inventory management is critical
to ensure that inbound items are recorded
so the company can keep track of returns.
Items and components are sorted and
separated, ready for reselling, recycling,
or disposal.
how operations and production work
Supply chain
32%
of an item’s original product
value could be reclaimed
as a result of a well-managed
reverse logistics system
Customers expect items to be transported
back to the seller in a straightforward
system, in person or by a delivery service.
Items are carefully checked on return.
If they are to be resold, they must be in
pristine condition.
Transport Receive
Sort
Inspect
NEED TO KNOW
Electronic waste (e-waste)
Electrical or electronic devices
that are unwanted, do not work,
or are obsolete
Warehousing Administrative
and physical functions necessary
for storage of goods, either for
selling or retrieval
US_330-331_Reverse_supply_chain.indd 331 21/11/2014 16:41
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