1. GLOBAL OPERATIONS
OUTSOURCING

2. 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.

3. 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

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

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

6. 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

7. 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.

8. 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.

9. 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

10. 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)

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

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

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

14. 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

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

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

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

18. 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.

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

20. 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.

21. 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)

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

23. 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.

24. 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.

25. 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.