Example of Outsourcing in Wal-Mart
Wal-Mart outsources the manufacture of its products to other countries, one of which is China. In particular, the retail company has 10,000 suppliers in China that manufacture for them. The company also has stores in over one hundred cities in the country (Chan and Unger, 2011). To gain competitive advantage, “every retail and consumer goods organization needs to have a comprehensive plan that collectively leverages either physical store and online capabilities, or both” (Ferrari, 2013). In this regard, outsourcing its manufacturing processes may be one strategy for Wal-Mart to gain a competitive advantage.
Recommendation
Although there are many benefits to outsourcing, I recommend against the outsourcing of Wal-Mart’s manufacturing processes. I would advise them to be cautious of the challenges and limitations of outsourcing. One is that the confidentiality of the company’s information may be compromised as the outsourcing provider would have access to such information, which can then lead to security threats (“Advantages and Disadvantages of Outsourcing,” 2016). It may also be more difficult to control and manage the offshore provider than to manage internal processes. As Chen and Wu (2013) asserted, it is important for a company to not only focus on the efficiency of its supply chain, but also on the risks, as the occurrence of unexpected events may result in all members of the supply chain being impacted. This in turn can lead to significant losses. In this regard, Hoejmose, Brammer and Millington (2012) contend that it is important for companies to develop trust with their supply chain partners. In addition, it is possible that the outsourcing provider caters to more than one company, which can compromise the quality of their performance. The partnership may also come with hidden costs, such as the legal costs. Moreover, it may take more effort and time to complete the signing of contracts. There may also be a lack of customer focus as the outsourcing provider does not have a good understanding of the customers’ needs in the same way that the company does. As well, there may be problems with delayed services, poor quality, lack of communication, and a misunderstanding of the contract (“Advantages and Disadvantages of Outsourcing,” 2016).
Response to Colleague
I agree that outsourcing some of the company’s processes would have certain advantages, one of which is that the company will be able to focus better on the other aspects of their business. In the case of Wal-Mart, the company will be better able to focus on improving the quality of its customer service and on developing strategies to further increase their sales and their revenue, as well as on improving their relationships with their various stakeholders.
Outsourcing the manufacturing of the company’s products will also result in reduced costs, considering the lower costs of labor in the outsourcing provider’s country. In turn, this will enable Wal-Mart to further lower the prices of their products; thus, leading to increased customer satisfaction. As well, outsourcing the manufacture of products would increase productivity; hence, enabling the company to better meet the customers’ increasing demand.
Another possible advantage is that the company would have fewer management problems as the outsourcing provider is responsible for managing the team in the offshore operations (“Advantages and Disadvantages of Outsourcing,” 2016). It also prevents the company from having to invest on additional infrastructure, as the outsourcing provider will take care of this. Finally, the company will incur reduced risks as they will be able to share the risks with the outsourcing provider.
References
Advantages and disadvantages of outsourcing, 2016. [online] Available at: < http://www.globaloutsourcingagency.com/adv.html> [Accessed 25 Feb 2016].
Chan, A. and Unger, J., 2011 April 19. Wal-Mart’s China connections. [online] Available at: <
http://prospect.org/article/wal-mart%E2%80%99s-china-connections> [Accessed 25 Feb 2016].
Chen, P-S. and Wu, M-T., 2013. A modified failure mode and effects analysis method for supplier selection problems in the supply chain risk environment: A case study. Computers and Industrial Engineering, 66, pp. 634-642.
Ferrari, B., 2013 November 5. Retail and B2C Supply Chains are in a State of Rapid Change: Is
Hoejmose, S., Brammer, S. and Millington, A., 2012. “Green” supply chain management: The role of trust and top management in B2B and B2C markets. Industrial Marketing Management, 41, pp. 609-620.
