Benefits and drawbacks of outsourcing strategies in the context of Essay

Benefits and drawbacks of outsourcing strategies in the context of attempting to improve the management of the supply chain - Essay Example It is outsourcing, as in off-shoring, which is a novel addition to contemporaneous supply chain management paradigms (Teece, 2005). While corporate experiential and empirical evidence pertaining to the outsourcing of some functions and steps within the totality of the supply chain management framework have fortified arguments in favour of the referred to business phenomenon, others have solidified opposition to it. Certainly, and as the experiences of both Nike and Dell Computers indicate, outsourcing has evolved into an integral componential element of the supply chain management paradigm, not only significantly reducing production and service costs while maintaining the integrity of quality standards but, it has significantly contributed to organisational capacity for efficient and effective operation and resource allocation. That, however, does not imply that outsourcing is not without its problems or that organisations do not have to contend with often formidable challenges prior to reaping the benefits of outsourcing. The failure of many organisations to do so, or to fully appreciate the importance of the o utsourcing planning stage, concomitant with a comprehensive articulation of the areas of supply chain management to be outsourced, and the outsourcing paradigm of each, should not be interpreted as evidence against the outsourcing of supply chain management functions. Instead, it should be more accurately understood as evidence for the exigencies of planning. 2. Introduction While popularly perceived of as a new phenomenon for which globalisation is held responsible, Domberger (2005) contends that outsourcing, as contracting, is a historical practice, solidly grounded in economic imperative and principle. As defined by Domberger (2005), outsourcing is best understood as a form of extra-contracting whereby, to reduce overall operational and manufacturing costs and maximise efficiency, firms and manufacturers have, traditionally and historically, contracting out specific steps in the work process, preferring to allocate work process steps according to specialisation, rather than the organisation assuming responsibility for the totality (Domberger, 2005).Outsourcing, from this definitional perspective is, thus, a cost reductive strategy, based upon the precept of specialisation. Concurring with the above definition, Sako (2005) maintains that outsourcing is the redesign of relationships within product manufacturing, organisational operation and supply chain management architecture. The components and principles of the aforementioned architecture have remained, despite technological evolution and innovation, the same but, the componential relationships within them have changed. Hence, while the supply chain management (SCM) architecture are still comprised of procurement, inventory planning, customer