Case 3: B&L Inc

Case 3: B&L Inc

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Case 3: B&L Inc

Executive Summary

The paper seeks to provide an in-depth understanding of the primary factors that may influence the need to either undertake outsourcing or in-house production of the identified component. In addition, the paper discuses the importance of consolidation of resources to focus on core competencies and the need for optimizing on the relationship with a contract manufacturer. In addition, the paper also notes that outsourcing may be efficient and cost effective given that it bring about inconsistencies in terms of disrupted lead time, failure to appeal to market needs, and poor product quality.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 3: B&L Inc

Analysis

It is evident from the costs quote of the potential to reduce the average costs of manufacturing the components from the initial $150 to an estimated $108. The calculations provide a possible opportunity towards concentration of the resources of the organization on core competencies. This would also contribute towards significant reduction in the costs of operation in the organization. Some of concerns that arise from outsourcing include storage costs in terms of area, labor, and related resources, as well as the associated lead-time towards delivery of the components. It is also critical to understand that outsourcing compared to investments in new technology may not provide a solution to the needs of the organization. Issues such as product quality may impede the entity’s potential towards increased demand or market potential for its product. Investing in new technology may also provide the organization with an avenue for enhancing its product quality and more so efficiency in delivery of products to the customers within the market.

In essence, it is critical to note that outsourcing of the production of the identified commodity would mean that the contract manufacturer makes determination of the quality of the product. The quality of the product is critical towards the overall market demand for the product and more so its acceptance into the market (Rushton, Walker, & Chartered Institute of Logistics and Transport, 2007). In this case, the primary objective has been to reduce cost of production, which may be attributed to differences in technology adoption between the contract manufacturer and the original equipment manufacturer. Capacity restrictions, quality, lead-time, disruption risks, reliability, discounting schemes, and ability to exit ability of the suppliers determine the supplier and outsourcing entity selections.

In this study, it is apparent that the primary focus has been on cost implications of the either in-house or outsourced production of the identified component. In addition, original equipment manufacturer may be worried over the effort levels or capabilities of the contract manufacturer as well as the quality of subsequent products produced. In-house production of the identified commodity may provide the organization with an avenue to focus on product quality and timely delivery of commodities with minimal disruptions to its supply chain function. However, it is evident that costs are critical towards ensuring that the entity continues operation into the foreseeable future by providing consumers with cost effective or fair priced components.

The experience in production of the identified component is critical towards determining the subsequent quality of the product (Rushton, Walker, & Chartered Institute of Logistics and Transport, 2007). This may be detrimental towards the intentions and anticipations of the original equipment manufacturer (OEM) to enhance its reach in the market through enhanced product availability and lower costs when compared to its competitors. In addition, it would be imperative to make comparisons of the identified component across the various contract manufacturers to establish the viability of outsourcing of the manufacturing of the outrigger bracket. Differences in product quality may provide the entity with avenues of ensuring that it does not compromise its existing customer base and potential market when it outsources this production activity to the identified contract manufacturer.

It is important to note that contracting the manufacturing process to contract manufacturers may not be efficient in ensuring timely and efficient delivery of quality products. It is evident of the presence of cost variations in favor of the contract manufacturer, with costs at $108 compared to the original manufacturer’s cost of $150. The cost variations are evidently because of various factors such as specialization by the contract manufacturer in the production of the component, technological capabilities and low labor c0osts within the geographical area of the contract manufacturer.

On the other hand, despite the presence of cost various in production between the contractor and original manufacturer, the primary entity can make investments in new technology to enhance capabilities in cost effective manufacturing processes for the identified component. In essence primary coordination mechanisms are inclusive of cost or profit sharing mechanisms that are engineered towards sharing of the benefits of coordination and existing cost sharing models are developed to provide distribution of total costs in the supply chain between the supply chain players.

In essence, despite the efficiency of a contract, the performance may not be as efficient as anticipated (Yu, Zeng, & Zhao, 2009). Hence, the choice of a contract is critical within the supply chain given that it determines the coordination levels between the two parties. Thi is illustrative of the need by the organization to determine the appropriateness of the contract towards implementation with consideration of the specific traits of the business structure and operational parameters within the organizational system. In addition, the adoption of efficient new information technologies as well as control systems may be critical towards ensuring success of the contractual engagement between the two parties. This provides a means of coordination of activities and communication of deliverables to ensure a reliable inventory management system and movement of commodities.

Outsourcing may provide an avenue for concentration of existing resources on the core competencies of the organization and strategically outsourcing the manufacturing of the identified commodities. This may provide an avenue for accrual of definable preeminence and providing the customers with a high value through products and services delivered. The inherent benefits in successful combination of strategic outsourcing and concentration of resources on core competencies are significant for the organization. The management can be able to leverage the resources of the organization in four primary avenues.

First, they are able to maximize and optimize on the internal resources by concentration on energies and investments to the core competencies and capabilities in the organization. Secondly, the rigid and well-developed core competencies in the organization provide effective barriers to existing and future competitors who may seek to expand into the entity’s field of interest (Rushton, Walker, & Chartered Institute of Logistics and Transport 2007). The core competencies can be assumed to be within trailer, sandblast, and paint divisions given that they perform as individual profit centers. This is critical towards ensuring that the entity is able to protect its strategic competitive advantages within its market share. Thirdly, the entity can be able to take advantage and optimize on the investments of the external suppliers innovations and specialization on professional capabilities possessed by the contracting manufacturer. Fourthly, in rapidly evolving consumer marketplaces and technological environments, the joint strategy proposed would reduce inherent risks of operation, the cycle times, investments and enable optimized responsiveness of the entity to customer and market needs.

For instance, research indicates that some American and Japanese entities achieved success as a result of outsourcing various support activities. Entities such as Hewlett Packard, Mitsubishi, Sony, and Yamaha had numerous product offerings, despite lacking conglomerate status (Baiman, Fischer & Rajan, 2001). The Japanese industry achieved success as result of restructuring around parent companies, which executed design and assembly activities with alliance partners and independent suppliers. Honda and Sony achieved international success by leveraging on core competencies in multiple markets and ensuring extensive outsourcing of support functions. This is illustrative of the potential of success for the organization. Core competencies are the capabilities or core knowledge sets or skills that an entity is able to execute with a high a level of efficiency.

This is illustrative of the need to focus on management systems and intellectual skills of the organization such as specialized professional labor in the production of the identified component. This is critical to ensure that the entity evolves and is able to sustain its competitive advantage in highly volatile markets (Yu, Zeng, & Zhao, 2009). Quality products are reliant on core competencies given that an entity is able to optimize its special skills in production of the trailers and continually improves such with respect to market activity, emerging technologies, and competition inherent in the market. Issues such as product design, creation, and adoption of new technology, customer relationship management practices, and logistics can be enhanced towards ensuring that the entity is able to overcome threats of existing and new competitors.

Essentially, the decision to either outsource or retain in-house manufacturing of the outrigger bracket is reliant on the ability of the entity to enhance its specialization in production of the identified component (Zhu, Zhang, & Tsung, 2007). In addition, costs of accessing and maintaining specialized labor may determine the ability of the entity to adopt new technologies in the production of the identified commodity. In addition, the level of specialization of the production process by the contract manufacturer may also determine the viability of the contractual engagement for production of the outrigger bracket. In addition, there is a need to take into consideration the lead-time, efficiency of delivery and inventory management systems of the organization to ensure minimal disruption in the supply chain function of B&L.

References

Baiman, S., P. Fischer & Rajan, M. (2001). Performance measurement, and design in supply chains, Management Science, 47(1), pp. 173-188.

Rushton, A., Walker, S., & Chartered Institute of Logistics and Transport in the UK. (2007). International logistics and supply chain outsourcing: From local to global. London: Kogan Page.

Yu, H., Zeng, A.Z., & Zhao, L. (2009). Single or dual sourcing: decision-making in the presence of supply chain disruption risks, Omega, 37(4), pp.788-800.

Zhu, K., Zhang, R.Q. & Tsung, F. (2007).Pushing Quality Improvement Along Supply Chains, Management Science,53(3), pp. 421-436.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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