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Core competence thinking in supply chains Core Competencies Source of competitive advantage Retain Complementary Competencies Support core competencies Outsource strategically: strategic alliances Residual Competencies Do not contribute to competitive Outsource competitively, leverage, (c) Neil Fuller 2013 1 transactional relationship advantage The Eighth Cardinal Sin Outsourcing a core competence (Cox, A) (c) Neil Fuller 2013 2 (c) Neil Fuller 2013 3 (c) Neil Fuller 2013 4 (c) Neil Fuller 2013 5 None Core Today Core Tomorrow (c) Neil Fuller 2013 6 Core Today None Core Tomorrow (c) Neil Fuller 2013 7 None – Core (c) Neil Fuller 2013 8 Core Today (c) Neil Fuller 2013 9 Successful Outsourcing Examples Unilever IBM global procure-to-pay service Jaguar Land Rover DHL NHS DHL -NHS Supply Chain Motorola Flextronics (c) Neil Fuller 2013 10 (c) Neil Fuller 2013 11 Outsourcing failures G4S unable to supply 8000 contracted staff for Olympics games security – taxpayer picked up the bill £70 million Boeing NHS Npfit £7.6 bn overrun HMRC’s tax Credits, £1.4 bn in overpayments written off. (c) Neil Fuller 2013 12 Outsourcing Failures Sainsbury’s “Business Transformation Programme” – the new system couldn’t track stock - cost £500m Carthage’s First Punic war Hanno the Great outsourced soldiering but a contract dispute resulted. Hamilcar Barca settled out of court. (c) Neil Fuller 2013 13 Risks of Offshore Outsourcing 1. Reputational risk 2. Underestimating the Total Acquisition Cost of the transaction Also dangers from Supply Chain Complexity (c) Neil Fuller 2013 14 (c) Neil Fuller 2013 15 (c) Neil Fuller 2013 16 (c) Neil Fuller 2013 17 Reputational Risk Threats of mass suicide Slave labourers freed 100 young women burned to death Microsoft Zara Walmart Counterfeiting Risk – quality affects reputation. (c) Neil Fuller 2013 18 True Cost • • • • • Prof K.W.Platts (University of Cambridge) Widespread failure to identify all of the associated costs Research shows that companies underestimate the non price costs of sourcing in China (and Far East) by about 30% Worst case total cost four time the quoted price. Underestimating warehousing, storage and inspection and quality costs. (c) Neil Fuller 2013 19 (7)Steps to improved outsourcing (DR Ilan Oshri) Understand the outsource motive and the resources available, identity overall goals and take a systematic approach. Avoid bandwagoning and outsourcing problems rather than solving them Avoid sourcing models that are beyond the firm’s capability to manage Draft SLA’s on the basis of benchmarks that lead to competitive advantage (KSF’s). (c) Neil Fuller 2013 20 The Relationship Between Supply Chain Risks (Christopher, M et al. 2010) Supply Risk Process Risk Demand Risk Control Risk Environmental Risk (c) Neil Fuller 2013 21 The Future When it is done well it clearly brings many advantages Globalisation has become a permanent feature of trade and offshore outsourcing will continue As organisations learn from their experiences they will become more cautious and will attempt to avoid the pitfalls and make more measured decisions. There is evidence of a trend towards insourcing (reshoring) with fewer but improved and more rationale outsourcing decisions. (c) Neil Fuller 2013 22 Successful Outsourcing (c) Neil Fuller 2013 23 (c) Neil Fuller 2013 24 Definition White and James (1993) “a contractual relationship between an external vendor and an enterprise in which the vendor assumes responsibility for one or more business functions of the enterprise (c) Neil Fuller 2013 25