Q2
Referring to the case, why do companies outsource? What are the pros and cons for outsourcing?
Definition of outsourcing
Outsourcing basically mean allocating specific business activities to a specialist service provider. It may involve transferring employees and assets from one firm to another. Normally it is outsource the non-core activities.
Reasons of outsourcing:
1. Can concentrate on its core activities E.g.
- Business strategy
- Marketing
- Product diversification
2. Has competitive edge in its core activities
3. Reduce the costs and the dependence on non-core activities
4. Reduce different cost E.g.
- High taxes
- High energy costs
- Labor costs
- Production cost
Reasons of outsourcing about Sanlu
1. Outsource the raw milk
- Get the supply from third parties
- Transfer the cost pressure of dairy farming and production to upstream suppliers
2. Concentrate its core business on
- Dairy-product manufacturing
- Marketing
- Commit to dairy research and development
- Diversify its mike-powder products to suit different groups
- Product diversification
Pros of sourcing
1. Reduce cost
- Salaries, operating costs, production costs (less workers and machine in production)
2. Outsourced vendors are specialists with technical expertise
- Better quality, faster completion of task (higher efficiency)
- Easily plan risk-mitigating factors
- Share risk between both parties
- Resource optimization
3. Can focus on core activities
- Competitive edge
4. Less responsibility
Cons of sourcing
1. Some with outsourcing HR / hiring activities
- Doubt on confidentiality of employee
2. No information of working conditions & cost of outsourced company
- No control on the quality & process of outsourcing activities
3. Different objectives of both parties
- Disturb strategic processes of both
References:
Sanlu PDF
http://en.wikipedia.org/wiki/Outsourcing
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