Journal Article Review: What Happens When You Outsource Too Much

Sometimes the issue on whether to make or to buy is one that is difficult to make depending on an entity's situation. Some obvious benefits have been taken advantage of ever since most industries began outsourcing. There could be areas where the other companies could be having some advantages over the one in question. They could be either close to the raw materials, or the availability of cheap labor. Hence these are the various factors that need to be taken into account to decide on whether to outsource. This paper will carry out an article review on the one titled When Happens When You Outsource Too Much written by Francesco Zirpol and Markus Becker.

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Several theories can be applied to explain the concept and the likely benefits to be harnessed by outsourcing. These theories can be divided into three broad categories of covering the areas that get affected which is strategic, economic and social or organizational theories (Stanko, Bohlmann & Calantone, 2009). Besides, there is also the outsourcing itself which some chose to refer to it as a theory that relates to services or work delivered by someone not employed by the firm in question. The strategic theories show concern with the way that a firm implements tactics for the sake of achieving specific goals and some of them are the game theory, resource-based view and resource dependency theory. Economic theories on the other side are concerned with the coordination of various departments and their transactions such as the agency and transaction economic theories. Niranjan and Rao (2011) agree that the social or organizational theories which concentrate on the interrelationship between different entities such as the social exchange, innovation diffusion and power politics theories. All these will come into play in governing the way that the form in the article relates or associates with the suppliers who have been subcontracted to produce various components for the company.

Due to industrialization and the spread of technology, it has gotten to a point where there are various industries spread across the world. They are all engaged in similar items but have some differences that give them either advantages or disadvantages in handling their processes. According to Pisano and Shih (2009), the most critical one is the factors of production which could be expensive in some places, or they may have some hindrances such that they cannot be taken advantage of. Whenever there is one outstanding factor, then it calls for the company in question to consider the benefits it will accrue in it. It is an era where there is some cut-throat competition among various companies. Taylor (2010) argues that the best that can happen is to look for means through which they can have a competitive edge, or they can relive themselves some of the processes and deal with the ones that matter most. There is also a possibility that some firms may have advanced technology in a given part and hence excel in it instead of seeking to outdo them they can be contracted to supply the given device. In this respect, it can be possible to gather the best of everything and addressing the manufacturing of only the ones that are not available in the market.

Many other factors would lead a company to decide on outsourcing rather than continue to deal with all the individual parts of a product. The need arose when some components that had been outsourced had to be integrated into their products. For example, a firm dealing with mechanical machines had to integrate a part that is electronic then they had to source for it from a firm that specialized in such components. The first one that was the cost advantage as some jobs were going to cost much lower outside the firm than when they had to continue being addressed from in-house (Stanko et al., 2009). As a result of outsourcing, there is a possibility that the parts that were troublesome to handle can be outsourced as there can be other people who are producing some specific better components than the ones that are currently made by the company. With a reduced number of processes that should be supervised and dealt with the company can be left with the ones that are most critical. It is likely to evaluate to higher value services and close monitoring than was possible previously. Some of the advanced technology can be expensive to implement, especially if it calls for an overhaul of the company machinery. Therefore, it can be easy to contract the same to the ones with the right technology for the same (Pisano & Shih, 2012). The funds that were previously directed to retraining or recruiting skilled employees can get diverted to other areas. If there is a need to continue operations past the closing hours, then some other firm can carry on the processes on behalf of the firm when they are closed or during holidays in their operational region. The turnaround time is increased as those other firms will have been given orders much earlier, and there is a larger pool to select from to supply similar components.

The decision to outsource and to what extent to do it for the firm's processes will depend on some factors. There are some functions of the product that is critical to the firm's priorities. The degree of alignment between a firm's competitive priorities and the related operational undertakings directly influences the overall performance. In the case of a firm that is manufacturing all its products in-house, it can be easy to control their quality and make changes accordingly. It becomes challenging and stressful when most of these parts manufacturing has been delegated to other firms and the outsourcing level is much bigger (Taylor, 2010). The suppliers may not be knowledgeable on the trend and the tastes of the customer and may not react appropriately to their feelings and tastes. In the case of a system error, it may be difficult to trace it to the individual component that is causing it.

The processes of troubleshooting and the time and costs of addressing these errors and system bugs are directly proportional to the degree of outsourcing. Therefore it presents a dilemma to the managers on the number of components that they need to hold back and manufacture in-house (Niranjam & Rao, 2011). It is one of the ways that they can become involved in the manufacturing of their products and react to the customers' concerns accordingly. Depending on the level of outsourcing the company may at one time have released their engineers and technical personnel to join the suppliers and similar companies. Pisano and Shih (2012) note that this is because their services at the moment will no longer be required since the components that they were dealing with is being made from outside the company. The managers get to a point where they are not sure whether to reopen these departments and start getting involved in the design and manufacture of some of these components. It again will be similar to reversing the gains realized from the outsourcing process.

According to the article, numerous benefits will be realized out of outsourcing, but there needs to be a limitation on how much to do it. Irrespective of it being an era of delegating the manufacture of most of these components there should be ahold on some of the ones that are critical and directly related to safety and the likings of the customer. There was a problem that was discovered by the managers, and they observed that outsourcing was adversely interfering with the films competencies and its knowledge base. The article noted some significant difference between the physical systems and their performance. It concluded by arguing that if outsourcing has to be left at this level, then the firm needs to address the arising problems by looking for ways of getting involved in their design and manufacturing processes.

References

Niranjan, T. T., & Rao, S. S. (2011). A Toolkit for Balanced Outsourcing. Industrial Management, 53(3), 19-24.

Pisano, G. P., & Shih, W. C. (2012). Producing Prosperity: Why America needs a manufacturing renaissance. Boston, Mass. : Harvard Business Press.

Stanko, M. A., Bohlmann, J. D., & Calantone, R. J. (2009). Outsourcing Innovation. Wall Street Journal - Eastern Edition. p. R6.

Taylor, M. (2010). Why too much onshoring could create a headache for LPO providers. Lawyer, 24(29), 4.