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Last Updated Jan 4, 6: Too many managers make outsourcing decisions piecemeal. They focus on incremental cost improvements rather than taking a strategic view of capability sourcing.
With strategic capability sourcing, you don't assume that your company's most vital capabilities must remain in-house. Credit-card giant American Express, for example, outsourced its crucial transaction processing function when it no longer provided proprietary advantage.
To source capabilities strategically, you must also decide which partners can best perform which capabilities. Rather than selecting suppliers based only on cost, for example, Chrysler consolidated component purchases with several suppliers it believed could sustain competitive costs, high quality, and efficient delivery.
And if your company's the best at a particular capability, consider making it an entirely new business--as UPS does by providing logistics management to other companies. The right capability sourcing strategy can translate into industry dominance: Strategic outsourcer 7-Eleven consistently beats other retailers in same-store merchandise growth, revenue per employee, and inventory turn rate.
The Idea in Practice To develop your capability sourcing strategy, apply these steps: Identify your business's "core of the core".
These are activities your company does better and cheaper than rivals. For 7-Eleven, they are product ordering and in-store merchandising--the pricing, positioning, and promotion of ready-to-eat food, gasoline, and sundries for car-driving consumers.
Decide what to outsource.
A capability has high proprietary value if your company executes it in a way that generates measurably more value than competitors could, and if your company would suffer major strategic damage if rivals imitated the capability.
A capability has high commonality if outside suppliers can achieve scale or other advantages by providing it to many others in your industry. Your strongest candidates for outsourcing? Capabilities that have low proprietary value and high commonality. Decide what to insource.
For capabilities your company excels at, consider "insourcing"--turning them into new businesses by performing this function for other companies.
Decide how to outsource. Compare each of your outsource-worthy capabilities' cost and quality to those of top-performing rivals or suppliers.
Use these comparisons to define outsourcing relationships: Outsource high-cost and unnecessarily high-quality capabilities to low-cost providers--even if that means some reduction in quality. Outsource high-cost, low-quality capabilities to partners who can reduce costs and boost quality.
Also structure each outsourcing partnership differently, depending on each capability's importance to your company's competitive distinctiveness. For more strategic capabilities, it makes more complex arrangements. For instance, the firm outsources gasoline distribution to Citgo but maintains proprietary control over gas pricing and promotion--activities that could differentiate its stores if done well.Crowdsourcing is a sourcing model in which individuals or organizations obtain goods and services.
These services include ideas and finances, from a large, relatively open and often rapidly-evolving group of internet users; it divides work between participants to achieve a cumulative result.
6) A disadvantage of the "few suppliers" sourcing strategy is: A) the risk of not being ready for technological change.
B) the lack of cost savings for customers and suppliers. A combined strategy (improvement and dual sourcing) can provide signiﬂcant value if suppliers are very unreliable and/or capacity is low relative to demand.
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1. SCM Main Assignment BACHELOR OF SCIENCE Subject: Supply Chain Management Class: Logistics Student: Peng Yu After gone through the case of “designing a hybrid global sourcing strategy” I felt that the hybrid organization and hybrid sourcing is doable and it should look like what I .
Supplier Scorecard Handbook Revision Date Excellence in Supply Management SUPPLIER PERFORMANCE EVALUATION ABG holds suppliers accountable to maintain or exceed performance requirements that have significant impact on our supply chain operations.
applicable Sourcing Strategy Team (SST). On the other hand, the hybrid Toyota Prius uses both gas and electricity, switching back and forth between the two power sources as needed to achieve optimum efficiency, performance and cost savings (and, of course, to be kind to the environment.).