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 OutsourcingTransferring company’s recurring and non-core internal activities and decision rights to outside providersSet forth in a contract, in order for the company to gain advantages
4 The Companies:Procter and Gamble (P&G)IBMPhilip MorrisTYC.
5 Procter & Gamble (core competency) MarketingProducts: Tide, Ivory, Bounty, Crest, Pepto-Bismol, Vicks, Always, Pampers.Manufacturing of major brands.Sales
6 Procter & Gamble (supply chain) Suppliers:Raw materialsPacking mat.Transport from suppliers to P&GProductionTransport from plant to warehouseTransport from warehouse to clientWarehouseOUTSOURCEDNOT 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) ManufacturingStrategic for P&GMetamucil 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 trailersAdministrative issuesSecurityThefts 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 forkliftsTruck load and unloadReturns (re-packing)Warehouse space.Proof of Delivery (Outsourced January 2000)
11 Procter & Gamble (outsourcing) BenefitsCostHuman resourcesOrganizational 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 technologyFinal assembly
13 IBM (supply chain) Gather customer requirements initial production developmentearly manufacturing and assemblevolume productionlogistics centersales & marketingdeliveryOUTSOURCEDNOT OUTSOURCED
14 IBM (outsourcing)IBM decided to outsource parts and specialized componentsPurchases 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 patternoptimize qualityflexibilityinventoryCostresponse time
16 Philip Morris (core competency) Manufacture and sale of cigarettes.MarketingMARLBORO, VIRGINIA SLIMS, MERIT, BENSON & HEDGES and PARLIAMENT
17 Philip Morris (supply chain) Suppliers:raw materialsLogistics and DistributionManufacturingOUTSOURCEDNOT 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) DistributionThird party logistics to distribute the cigarettes to retailersResponsible 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 productsprimary customers are in the collision parts industryProducts (development of exterior lighting)exterior lighting program, A/C Condensers, and OEM replacement side view mirrorsSales (distribution of end product)
22 TYC Brother Industrial Co., Ltd. (supply chain) Supplier: raw materialsManufacturing,AssemblingShipping from production plants to warehouseWarehousingOUTSOURCEDNOT OUTSOURCED
23 TYC Brother Industrial Co., Ltd. (outsourcing) Certain brands of lamps in order to save costs.molding process normally requires millions of dollarsCondensers and mirrors.
24 TYC Brother Industrial Co., Ltd. (outsourcing) ReasonsCost reductions between 20% and 30% when it outsources lampsHaving a complete line of products to offer their clients.Retailer.
25 ConclusionsAs 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.