GLOBAL OPERATIONS OUTSOURCING

Introduction Competitive organization is lean and flexible. Key to successful restructuring: focus on core competencies or strategically important activities. Withdraw from non-core functions. Outsourcing non-core activities.

Outsourcing Transferring company’s recurring and non-core internal activities and decision rights to outside providers Set forth in a contract, in order for the company to gain advantages

The Companies: Procter and Gamble (P&G) IBM Philip Morris TYC.

Procter & Gamble (core competency) Marketing Products: Tide, Ivory, Bounty, Crest, Pepto-Bismol, Vicks, Always, Pampers. Manufacturing of major brands. Sales

Procter & Gamble (supply chain) Suppliers: Raw materials Packing mat. Transport from suppliers to P&G Production Transport from plant to warehouse Transport from warehouse to client Warehouse OUTSOURCED NOT OUTSOURCED

Procter & Gamble (outsourcing) Suppliers: Not a core competency. Make sure raw and packing materials are of quality. Work closely with suppliers. Small network of suppliers. Transportation from suppliers to P&G.

Procter & Gamble (outsourcing) Manufacturing Strategic for P&G Metamucil was manufactured in Searle, now it is imported from Phoenix, one of P&G’s production plants. Bundles (packing for club stores) is outsourced.

Procter & Gamble (outsourcing) Transportation (plants to warehouse, warehouse to clients) Small number of carriers (Schnider) Quality in the trailers Administrative issues Security Thefts in the city, costs are divided with carriers. Special “body guard system” Economies of Scale

Procter & Gamble (outsourcing) Warehousing (EXEL Logistics) Master Distribution Center, 2 X-Docks. Physical management of warehouse. Physical control of inventory. Operation of forklifts Truck load and unload Returns (re-packing) Warehouse space. Proof of Delivery (Outsourced January 2000)

Procter & Gamble (outsourcing) Benefits Cost Human resources Organizational benefits (value added for the whole organization). IWS (focus of the organization)

IBM (core competency) Hard-disk and head technology. Unique design for head and hard-disks. leading technology Final assembly

IBM (supply chain) Gather customer requirements initial production development early manufacturing and assemble volume production logistics center sales & marketing delivery OUTSOURCED NOT OUTSOURCED

IBM (outsourcing) IBM decided to outsource parts and specialized components Purchases the parts from the suppliers and assembles them in the warehouses. 3 - 5 per part components when suppliers

IBM (outsourcing) cost reduction and supply chain management Reasons: smoothing the flow pattern optimize quality flexibility inventory Cost response time

Philip Morris (core competency) Manufacture and sale of cigarettes. Marketing MARLBORO, VIRGINIA SLIMS, MERIT, BENSON & HEDGES and PARLIAMENT

Philip Morris (supply chain) Suppliers: raw materials Logistics and Distribution Manufacturing OUTSOURCED NOT OUTSOURCED

Philip Morris (outsourcing) Suppliers: Philip Morris does not farm the plant for leaf tobacco; buys from farmers. It does not produce the paper; buys from paper suppliers. Relationships between Philip Morris and its suppliers are close to partnerships. Philip Morris gets better rates while suppliers secure their business volume.

Philip Morris (outsourcing) Distribution Third party logistics to distribute the cigarettes to retailers Responsible for damages that might occur during the transportation of goods.

Philip Morris (outsourcing) Reasons: Enhance effectiveness by focusing on what Philip Morris does best. Redirect resources to more strategic activities that provide a greater return. Increase flexibility to meet changing business conditions . Control operating cost.

TYC Brother Industrial Co., Ltd. (core competency) Producer of automotive lamps and lighting products primary customers are in the collision parts industry Products (development of exterior lighting) exterior lighting program, A/C Condensers, and OEM replacement side view mirrors Sales (distribution of end product)

TYC Brother Industrial Co., Ltd. (supply chain) Supplier: raw materials Manufacturing, Assembling Shipping from production plants to warehouse Warehousing OUTSOURCED NOT OUTSOURCED

TYC Brother Industrial Co., Ltd. (outsourcing) Certain brands of lamps in order to save costs. molding process normally requires millions of dollars Condensers and mirrors.

TYC Brother Industrial Co., Ltd. (outsourcing) Reasons Cost reductions between 20% and 30% when it outsources lamps Having a complete line of products to offer their clients. Retailer.

Conclusions As world markets trend towards increased competition and an ever increasing need for decreased production costs, many companies will find the need to outsource many more functions in the value chain and supply chain.