Outsourcing: Critical Issues for Consideration Beforehand - Essay Sample

Introduction

There are a lot of very critical issues that have to be put into serious consideration before goods are outsourced from the global industry to other parts. The issues, in this case, are critical in that they may affect the general outcome of the business in a negative way if not managed well. However if well considered and handled before sourcing is done, the impacts of outsourcing will be a benefit to the business entirely. Some of the most common issues which are critical when it comes to this are;

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Characteristics of the raw materials in that it should be considered whether they will have to be changed into other forms or will be sold in their initial form. Monetary risk means that the outsourcing of the goods should be able to save on costs. Outsourcing should be able to give a competitive advantage to the business. The other consideration is the culture and ethics of the supplier and the buyer of the outsourced goods in the perspective that the business should uphold the ethics and cultural requirements of the various groups up to and including the consumers of the outsourced goods (Golini & Kalchschmidt, 2011). Outsourcing of any type of goods must be in line with the regulatory environments and compliance bodies and meet all the requirements of these particular bodies before any transaction is allowed to take place.

It is through this regulation and compliance where the other important and critical issue of quality comes in. The outsourced goods despite low costs must be of the quality that customers will enjoy using. The final thing that needs to be put into much consideration when it comes to outsourcing is the method to be used in the transportation of the raw materials or rather the logistics. This is in the sense that the method should be able to reduce the cost and preserve the quality of the materials being transported. With these issues being taken seriously, then it would be great for any business to outsource goods at low costs and enjoy great profits.

Identify and Explain the Advantages and Disadvantages of Outsourcing

There are several advantages and disadvantages of outsourcing. Basically, the advantages outdo the disadvantages. One of the advantages of this is that the goods are sourced at low costs and then they are sold by the owners to enjoy high levels of profitability. This means a good thrive in the business. High-quality goods are always easy to get from outsourcing rather than when they have to be fetched locally. High quality of the goods being dealt in with by a business obvious means that the profits of the business will hike due to the increasing availability of customers. Moreover, there is an assurance of a consistent flow of the goods through outsourcing when compared to the instance where these particular goods are obtained locally.

However, turning to the negative side of outsourcing, one of the main disadvantages is the fact that the costs of outsourcing may be high at some specific times and thus affect the profitability of the business in a negative way. This is through high shipping costs as well as the taxes and other levies that are imposed on outsourced commodities (Carmel, Lacity & Doty, 2016). Low-quality products are not an evasion from outsourcing and this may be a serious downfall of the business. The other disadvantage that is associated with outsourcing of raw materials and finished goods is the fact that the transport methods may be a problem and may not be effective enough to get the goods to the intended location in good conditions and low costs.

Differentiate Between Buyback Contracts and Revenue Sharing Contracts for Product Availability and Supply Chain Profits

The two types of agreements are so much different when it comes to supply chain management. These are the buyback contracts and revenue sharing agreements. Buyback contracts are the kinds of contracts whereby the original seller of any commodity in the contract is allowed the right to repurchase that particular item again under specified conditions. In most cases, buybacks happen when there are certain conditions which have not been met by the buyer of the commodity (Chopra & Meindl, 2007). The original seller has the right to repurchase this commodity before any other person is prioritized for the purchase and in this case, the buyer is the one who incurs costs of logistics to transport the commodities back to the seller.

On the other hand, a profits sharing agreement is the one in which the retailer buying commodities from a supplier pays wholesale prices in full for any items purchased and goes to the extent of sharing the revenues they generate from the commodities in agreed percentages. This kind of contract is becoming popular today especially in the government and other parastatals. The supplier seems to enjoy more benefits out of this kind of a contract.

References

Carmel, E., Lacity, M. C., & Doty, A. (2016). The impact of impact sourcing: Framing a research agenda. In Socially Responsible Outsourcing (pp. 16-47). Palgrave Macmillan, London.

Golini, R., & Kalchschmidt, M. (2011). Moderating the impact of global sourcing on inventories through supply chain management. International Journal of Production Economics, 133(1), 86-94.

Chopra, S., & Meindl, P. (2007). Supply chain management. Strategy, planning & operation. In Das summa summarum des management (pp. 265-275). Gabler.