Procurement Outsourcing Strategies Essay Sample

Summary of the scenario

The scenario presents a widget producing company going by the name Wonderful Widgets. Wonderful Widgets Company majors in the production of a single product, the widgets. The company can acquire raw materials from its current equipments or buy from external suppliers. The company faces significant challenges associated with increased cost of production because in bad procurement strategies. The supply manager faces a hard task of establishing the best method of acquiring raw materials for production in order to minimize cost and make more profits. Outsourcing or procuring components for making widgets from one or a number of suppliers forms the biggest challenge. Additionally, the manager should look at the risks involved in acquiring components and their respective impacts before deciding on the best strategy. The discussion proposes the use of a minimized total landing cost strategy as the most appropriate procurement strategy for Wonderful Widgets.

The problem

Wonderful Widgets Company faces procurement problems related to increased costs of operation each month. The company experiences more losses that expected because of lack of proper procurement outsourcing strategies. The firm’s Board of Directors expects to see a quarterly report on the company’s progress; hence the supply manager should streamline procurement processes in order to ensure low operational costs. Moreover, the chosen strategy should consider all risks involved and their effects towards the cost of acquiring production components for the organization.

Proposed Solutions

The supply chain manager has three options that would help in reducing the cost of production. The first solution involves outsourcing components from external suppliers. Using outsourcing only saves the company from worrying about the competitive advantage, value placed on the component and clock speed. According to McIvor (2005), factors such as the competitive conditions of the prevailing business environment influence the outsourcing evaluation and management. On the other hand, outsourcing has a disadvantage in that it leads long supply lead time for key components interfering with the delivery time for customers (Simchi-Levi, Kaminsky & Simchi-Levi, 2008).
The second strategy proposed in the scenario involves outsourcing or procuring components from one of the multiple suppliers. The above solution is advantageous in that the company faces minimal supply risks. The outsourced company will incur all risks involved during the supply process that ensures materials are derived to Wonderful Widget on time and in perfect condition. On the other hand, the strategy has a disadvantage on the issue of the profit impact. The supplier of components has the capacity of offering the products at any price in order to cater for risks involved in the supply processes. The following issue might increase the cost of procuring components decreasing profits of Wonderful Widgets. Using multiple suppliers forms the best option because it ensures low supply risks and low-profit impacts. Additionally, using multiple suppliers makes the company minimize total landing cost and reduced lead times together with promoting supply flexibility.
The final strategy recommended by the Wonderful Widget Company was minimizing total landing cost. The above procurement strategy incorporates both supply risks and profit impacts in order to ensure the company acquires production components at an affordable price, with limited risks, and gains more profits. The strategy has an advantage in that it assists the company reduces its operational costs.

Recommended strategy

Producing widget components locally increases operation costs for Wonderful Widget because of variable and fixed costs recommending outsourcing as the best strategy. In the present troubling economic times, organizations should pay more attention to strategies that eliminate unwanted waste and redundancy, cuts costs, and reduce risks of operations. A proper look at the above factors ensures the survival of any organization. Procurement outsourcing forms one of the most efficient approaches used by organizations in the present business environment to achieve their objectives and business goals (Huber & Minahan, 2012). Most industry segments have adopted procurement strategies, and Wonderful Widget should not be an exceptional. Outsourcing assists in achieving the most organizational goals through reducing risks involved in the production process and ensuring the organization identifies new developments that increasing opportunities for growth.
Wonderful Widget should implement should implement globalization and procurement outsourcing strategy in order to eliminate the problem of high production cost. Globalization and procurement outsourcing involves use of technology and business best practices for increasing the competitive advantage. The process promotes efficient service delivery and ensures timely supply of production components to designated organizations. Additionally, globalization and procurement outsourcing strategy helps the organization decide on the best business practice depending on the prevailing business environment, government policies, and any other factor that influences procurement process. The company can implement the above recommendation by setting up a committee of experts to research on the best outsourcing businesses and contract them to supply widgets to the organization. The selection process should be based on the overall productivity of the outsourcing company, compliance with government policies, and other contracts that the company had signed before.
Completing the above scenario faced challenges because of difficulties in establishing the exact operational costs affecting Wonderful Widgets. The scenario did not specify how the company ended up increasing the cost of operation and yet they could also produce the components locally. Strategic alliances have an impact on procurement outsourcing strategies through affecting the risks, cost of production and profit levels of the outsourcing company.

References

Huber, B. & Minaham, T. (2012). Procurement Outsourcing: Not an All or Nothing Value
Proposition. Information Service Group (ISG). Retrieved January 5, 2015 from http://www.isg-one.com/knowledgecenter/whitepapers/private/papers/White_paper_-_Procurement_Outsourcing_-_Not_All_or_Nothing.pdf
McIvor, R. (2005). The outsourcing process: Strategies for evaluation and management.
Cambridge [etc.: Cambridge University Press.
Sinchi-Levi, D.. Kaminsky, P. & Simchi-Levi, E. (2012). Designing & managing the supply
Chain: Concepts, strategies & Case studies. The McGraw-Hill Companies, Inc.