1. Strategic Outsourcing and Business Model Definition
Andrea Tracogna

2. The next business model?

3. Different reasons for not “making”: the economics of outsourcing (1)
The search for flexibility. Manufacturers of “original equipment” (OEM) outsource production when demand is high and cancel it when orders are cancelled or demand falls. Thanks to the substitution effect between fixed and variable costs they obtain higher cost elasticity.
2. Lower costs, especially when the firm can benefit from suppliers’ economies of scale (a supplier can integrate demand from a large number of clients, as against the purchasing firm) and economies of specialisation (a supplier can specialise in single activities and reach world-class levels of excellence).

4. Different reasons for not “making”: the economics of outsourcing (2)
Less investments in fixed (machinery, equipment, production lines, transport systems) and working capital (input and output stocks), which are undertaken by suppliers. Less investments in R&D as firms can take advantage of the numerous innovations available on the outside supply market.
4. A greater focus on client needs and services and product development activities, i.e. on key activities for value creation;

5. The Nike model Nike employs approximately 30,000 people worldwide.
Nike brand has some 1,000 contract factories in the Americas, EMEA, North Asia and South Asia, providing more than 800,000 jobs to local communities.
From its headquarters in Beaverton, Oregon, Nike manages a worldwide virtual company combining internal R&D functions with a low cost manufacturing strategy.
Its “Air Max” model is designed in sites in Oregon and Tennessee and developed jointly by American and Asian technicians in the USA, Taiwan and South Korea. Shoes are then assembled in South Korea (man’s size) and Indonesia (boys’ size) from dozens of components supplied by firms in Japan, South Korea, Taiwan, Indonesia and the United States.

6. Nike’s value chain? INFRASTRUCTURAL ACTIVITIES HRM SUPPORT ACTIVITIES
MARGINS
NPD AND TECHNOLOGY
PROCUREMENT
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING AND SALES
SERVICES
MARGINS
PRIMARY ACTIVITIES

7. Nike as a supply chain orchestrators
Focus on a portion of the value chain
Emphasize partnering
Invest in brands
Minimize tangible investments
Arbitrage international factor price differencies

8. Managing the supply chain
Research
Technology
Communities
Market research
Suppliers
Manufacturers
Distributors
End users
Suppliers’ suppliers
Consultants
Design
Other Services
Logistics

9. Outsourcing trends in car manufacturing
The car industry is undergoing dramatic changes as manufacturing is today increasingly moving to supply markets, while OEMs or vehicle brand holders are focusing on design, engineering and marketing.
For instance, Porsche Boxter and the Porsche Cayman are completely assembled by Valmet, a Finnish engineering company.
Canadian company Magna assembles cars for all major carmakers and has bought from them various plants including the site in Styria (Austria) where Mercedes-Benz E-Class, Jeep Grand Cherokee, Chrysler Voyager, Saab 93 Convertible, BMW X3 are assembled.

10. What is Business Process Outsourcing (BPO)?
Pre-manufacturing activities
Design and engineering
Consulting in packaging
Concurrent engineering
Production tests
Prototyping
Manufacturing and accessory activities
Logistics management of supplies
Assembly
Packaging
Quality controls
Post-manufacturing activities
Distribution logistics
Technical assistance services
Management of spare parts

11. Contract electronics manufacturing
Foxconn is the world leader for joint-design, joint-development, manufacturing, assembly and after-sales services to global Computer, Communication and Consumer-electronics ("3C") leaders. 

12. IT-enabled outsourcing
Thanks to digitalisation and information technologies, outsourced activities can now be carried out remotely at locations that are very far from the company that outsourced them. These activities include:
Data centre management,
Web hosting and website management,
Data entry services,
Accounting services,
Customer services, such as direct marketing, call centres and help desk services,
Text and graphic editing services,
Management of distance learning platforms

13. Key principles of strategic outsourcing
Carry out in-house only activities that are critical to the value chain and in which the firm has a competitive edge.
Outsource activities in which suppliers have a competitive edge in terms of volumes, efficiency and quality.
Use outsourcing as a means of generating the incentives necessary to improve internal performance.
Limit your vulnerability in the event of a break-up of relationships with suppliers or overall “market failure”.

14. ZARA: the exception to the rule?

15. The Zara paradox Localization of operations Commitment to fixed assets
Downwards vertical integration
Premium image and stores without advertising
(Fast) followership

16. Zara’s value chain? INFRASTRUCTURAL ACTIVITIES SUPPORT ACTIVITIES HRM
MARGINS
NPD AND TECHNOLOGY
PROCUREMENT
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING AND SALES
SERVICES
MARGINS
PRIMARY ACTIVITIES