GLOBAL OPERATIONS
OUTSOURCING
Introduction
Competitive organization is lean and
flexible.
Key to successful restructuring: focus
on core competencies or strategically
important activities.
Withdraw from non-core functions.
Outsourcing non-core activities.
Outsourcing
Transferring company’s recurring and
non-core internal activities and decision
rights to outside providers
Set forth in a contract, in order for the
company to gain advantages
The Companies:
Procter and Gamble (P&G)
IBM
Philip Morris
TYC.
Procter & Gamble (core competency)
Marketing
Products: Tide, Ivory, Bounty, Crest,
Pepto-Bismol, Vicks, Always, Pampers.
Manufacturing of major brands.
Sales
Procter & Gamble (supply chain)
Suppliers:
Raw materials
Packing mat.
Transport from
plant to
warehouse
OUTSOURCED
NOT OUTSOURCED
Transport from
suppliers to P&G
Warehouse
Production
Transport from
warehouse to
client
Procter & Gamble (outsourcing)
Suppliers:
Not a core competency.
Make sure raw and packing materials are
of quality.
Work closely with suppliers.
Small network of suppliers.
Transportation from suppliers to P&G.
Procter & Gamble (outsourcing)
Manufacturing
Strategic for P&G
Metamucil was manufactured in Searle,
now it is imported from Phoenix, one of
P&G’s production plants.
Bundles (packing for club stores) is
outsourced.
Procter & Gamble (outsourcing)
Transportation (plants to warehouse,
warehouse to clients)
Small number of carriers (Schnider)
• Quality in the trailers
• Administrative issues
Security
• Thefts in the city, costs are divided with carriers.
• Special “body guard system”
Economies of Scale
Procter & Gamble (outsourcing)
Warehousing
(EXEL Logistics)
Master Distribution Center, 2 X-Docks.
Physical management of warehouse.
•
•
•
•
Physical control of inventory.
Operation of forklifts
Truck load and unload
Returns (re-packing)
Warehouse space.
Proof of Delivery (Outsourced January 2000)
Procter & Gamble (outsourcing)
Benefits
Cost
Human resources
• Organizational benefits (value added for the
whole organization).
• IWS (focus of the organization)
IBM (core competency)
Hard-disk and head technology.
Unique design for head and hard-disks.
leading technology
Final assembly
IBM (supply chain)
Gather
customer
requirements
sales &
marketing
OUTSOURCED
NOT OUTSOURCED
initial
production
development
logistics
center
early
manufacturing
and assemble
delivery
volume
production
IBM (outsourcing)
IBM decided to outsource parts and
specialized components
Purchases the parts from the suppliers
and assembles them in the warehouses.
3 - 5 per part components when
suppliers
IBM (outsourcing)
cost reduction and supply chain management
Reasons:
smoothing the flow pattern
optimize quality
flexibility
inventory
Cost
response time
Philip Morris (core competency)
Manufacture and sale of cigarettes.
Marketing
MARLBORO, VIRGINIA SLIMS, MERIT,
BENSON & HEDGES and PARLIAMENT
Philip Morris (supply chain)
Suppliers:
raw
materials
OUTSOURCED
NOT OUTSOURCED
Manufacturing
Logistics and
Distribution
Philip Morris (outsourcing)
Suppliers:
Philip Morris does not farm the plant for
leaf tobacco; buys from farmers. It does
not produce the paper; buys from paper
suppliers.
Relationships between Philip Morris and its
suppliers are close to partnerships.
Philip Morris gets better rates while
suppliers secure their business volume.
Philip Morris (outsourcing)
Distribution
Third party logistics to distribute the
cigarettes to retailers
• Responsible for damages that might occur
during the transportation of goods.
Philip Morris (outsourcing)
Reasons:
Enhance effectiveness by focusing on what
Philip Morris does best.
Redirect resources to more strategic
activities that provide a greater return.
Increase flexibility to meet changing
business conditions .
Control operating cost.
TYC Brother Industrial Co., Ltd.
(core competency)
Producer of automotive lamps and lighting
products
primary customers are in the collision parts
industry
Products (development of exterior lighting)
exterior lighting program, A/C Condensers, and
OEM replacement side view mirrors
Sales (distribution of end product)
TYC Brother Industrial Co., Ltd.
(supply chain)
Supplier: raw
materials
Shipping from
production plants to
warehouse
OUTSOURCED
NOT OUTSOURCED
Manufacturing,
Warehousing
Assembling
TYC Brother Industrial Co., Ltd.
(outsourcing)
Certain brands of lamps in order to
save costs.
molding process normally requires millions
of dollars
Condensers and mirrors.
TYC Brother Industrial Co., Ltd.
(outsourcing)
Reasons
Cost reductions between 20% and 30%
when it outsources lamps
Having a complete line of products to offer
their clients.
Retailer.
Conclusions
As world markets trend towards
increased competition and an ever
increasing need for decreased
production costs, many companies will
find the need to outsource many more
functions in the value chain and supply
chain.