Profs. Shruti Jain and Shweta Dixit write...
The authors can be contacted at: shruti.jain@niilm.com, sdixit@niilm.com
Procurement plays an
important role in helping companies achieve the desired savings and
profitability. Strategic sourcing has gone to new levels for building process
excellence and aligning capabilities with requirements of corporate buy, as procurement
has a key role in the corporate quest for value growth. Outsourcing has rapidly
become a part of the everyday social lexicon. Harvard Business Review has
identified outsourcing as one of the most important management ideas of the
past 75 years.
Outsourcing saves precious resources and allows focus
while building on core competencies.
Further, it leads to more profits, increased shareholder value, greater
efficiency and better services. Therefore, more and more companies are moving
their non-core business processes to outsource providers.
International outsourcing
represents an opportunity to obtain materials at a lower cost than is possible
in the home country .The trend towards such sourcing has been on the increase. To
reduce costs European and Japanese companies are relying less on internal
sourcing of materials. American firms too are taking advantage of such trends
and outsourcing mainly from Mexico and Southeast Asia. For example, a major
shift in the procurement from Mexico of high priced and high labor content
materials that are inexpensive to transport.
Strategies which results in
lower procurement costs without significantly compromising quality or
increasing transportation charges are expected to become more widespread.
General Agreement on
Tariffs and Trade (GATT) and the establishment of the World Trade Organization
(WTO) have helped to globalize the sourcing option. Countries may now be
identified as production platforms where a specialized activity in a company’s
value chain can occur and provide a competitive advantage. These countries
might possess special endowment factors such as low labor cost, availability of
resources, good infrastructure, skilled workers, and local demand for
manufactured products. To exploit these advantages, a firm may source from a
number of locations to minimize overall cost and gain access to technology and
quality output.
Global sourcing is also
advocated as a means of achieving economies of scale, improving quality, and preparing
export markets by obtaining knowledge from purchasing activities oversea.
Sourcing may now be regarded as a network in which firms try to manage the flow
of materials.
Outsourcing is a phenomenon
that has been one of the most sustained yet controversial trends over the past
few years and consequently researchers have found it attractive. In particular,
offshore outsourcing has become one of the mainstays of several different
research disciplines, including international business, strategic management,
supply-chain management and information.
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