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Outsourcing your business has great a benefit since it cost less, and you can get better quality, plus you can save on infrastructure. Moreover, you no longer need to invest in recruiting and training expensive resources for your business because the foreign country will be well established to deliver product. However, exporting has a dark side, if you merely export to a country, the distributor or buyer might switch to or at least threaten to switch to a cheaper supplier to get a better price.

WHY SHOULD WE CARE?

We all probably understand outsourcing better than we think, and in part that is thanks to the UPS commercials where they boil down logistics to its foundation: getting things where they need to be, when they need to be there at a cost that is acceptable to both the seller and buyer. Outsourcing has been a prominent business practice among businesses worldwide. Business owners that are looking for practical methods to enhance the efficiency of their processes find relief in outsourcing. Outsourcing refers to the business practice of contracting an external organization to handle specific tasks. External companies that deal with these tasks are commonly known as Business Process Outsourcing (BPO) providers. Tasks that BPO firms handle are non-core or functions that are essential but not the most critical part of business operations. (Muñiz, 2018)

Global production, outsourcing, and logistics and benefits

There are many benefits of outsourcing your business processes to destinations around the world. Some of them are –

1. Cost advantages-The most obvious and visible benefit relates to the cost savings that outsourcing brings about. You can get your job done at a lower cost and at better quality as well. Due to the difference in wages between western countries and Asia, the same kind of work that is done over there can be done in India at a fraction of the cost. There is a cost savings of around 60% by outsourcing your work to India. Plus, the quality of the services provided is high thereby ensuring that low-cost does not mean low-quality.
2. Increased efficiency -When you outsource, this can bring years of experience in business practices and expertise in delivering complex outsourcing projects. Thus, they can do the job better with their knowledge and understanding of the domain. This leads to an increase in productivity and efficiency in the process thereby contributing to the bottom-line of your company.
3. Focus on core areas-Outsourcing your business processes would free your energies and enable you to focus on building your brand, invest in research and development and move on to providing higher value added services.
4. Save on infrastructure and technology-Outsourcing eliminates the need for investment in infrastructure as the outsourcing partner takes the responsibility of the business processes and hence develops infrastructure for the same.
5. Access to skilled resources-You no longer need to invest in recruiting and training expensive resources for your business.
6. Time zone advantage-Apart from the cost advantage, the other much touted benefit has to do with the time zone differential between your country and the location you are outsourcing to. Get your job done while you are closed for the day and wake up to your service being delivered the next morning. This unique advantage gives you the benefit of round-the-clock business operations
7. Faster and better services-Make your service offerings better with high quality deliverables and decrease the lead time it takes for your product to reach the marketplace. Thus you would be faster in getting your ideas converted into products and better at delivering the value-added proposition. (Flatworld, 2018)

EXAMPLES HERE IN UTAH

When one thinks of logistics, UPS usually comes to mind. UPS takes pride in having the most up to date information for every item shipped all throughout the world. Utah plays a huge part in this goal. UPS is set to open its crown jewel distribution center in Salt Lake City in late 2018 which will add an estimated 1500 jobs to the Utah economy.

UPS will build a new regional operations hub in Salt Lake City that will be among the largest processing facilities in its global package network. The $275 million project joins other significant capital investments announced over the past 24 months focused on new construction combined with modernization and expansion of top tier UPS® hubs in the U.S. to address planned growth.

When completed in late 2018, the new 840,000 square foot facility will process 69,000 packages per hour as a complement to the existing 200,000 square foot operations in town.

“This new regional hub is one of our strategic initiatives to continue to build the long-term future of UPS,” said Mark Wallace, UPS senior vice president of global engineering and sustainability. “Utah is the crossroads to serving the Western U.S., and the state-of-the-art automation technology being deployed will improve performance, increase capacity and create additional flexibility to handle the non-stop growth of e-commerce business in the region.”

More than 1,500 jobs will be aided by new technology and automation that increase the accuracy of data collection for reliability and processing flexibility as packages route through the complex system of conveyors and advance across a maze of belts. Two automated processing areas will focus on smaller-sized packages, typical of today’s e-commerce purchases.

Nearly 160 acres were assembled with convenient interstate and airport access to support UPS growth across the mountain west, much of it from both commercial and residential e-commerce. The property will include onsite fueling to accommodate both diesel and natural gas alternative fueled vehicles.

Ken Cherry, president of the UPS Desert Mountain district that includes Utah operations, noted UPS appreciation for support from city and state officials. “UPS customers benefit from new efficiencies and capacity, and we sustain and grow jobs in the area for a positive economic impact.”

UPS currently employs more than 3,500 workers across Utah in package, heavy freight and contract logistics operations. The company’s footprint includes 24 operating facilities and 46 The UPS Store® locations as independently-owned small businesses that are part of a franchise network. (Pressroom, 2018)

Risks of Exporting

There are risks in relying on the export option. If you merely export to a country, the distributor or buyer might switch to or at least threaten to switch to a cheaper supplier in order to get a better price. Or someone might start making the product locally and take the market from you. Also, local buyers sometimes believe that a company which only exports to them isn’t very committed to providing long-term service and support once a sale is complete. Thus, they may prefer to buy from someone who’s producing directly within the country. At this point, many companies begin to reconsider having a local presence, which moves them toward one of the other entry options.

Global production, outsourcing, and logistics and factors to consider

• Cultural and linguistic differences. These affect all relationships and interactions inside the company, with customers, and with the government. Understanding the local business culture is critical to success.
• Quality and training of local contacts and/or employees. Evaluating skill sets and then determining if the local staff is qualified is a key factor for success.
• Political and economic issues. Policy can change frequently, and companies need to determine what level of investment they’re willing to make, what’s required to make this investment, and how much of their earnings they can repatriate.
• Experience of the partner company. Assessing the experience of the partner company in the market—with the product and in dealing with foreign companies—is essential in selecting the right local partner.
• Low Fixed Costs. Serve the world market out of one single location to maximize economies of scale.
• High Fixed Costs. Operate locally out of multiple locations to be more responsive to local market needs and be less dependent on any one market or facility.

Global production, outsourcing, and logistics and minimum efficiency scale

The point at which economies of scale are exhausted and the unit price cannot be pushed any lower.  This is when a firm’s minimum efficient scale (MES) is the lowest scale necessary for it to achieve the economies of scale required to operate efficiently and competitively in its industry.  No further significant economies of scale can be achieved beyond this cale. Minimum efficient scale affect the number of firms that can operate in a market, and the structure of markets.

When Minimum efficient scale is low, relative to the size of the whole industry, a large number of firms can operate efficiently, as in the case of most retail business, like corner shops and restaurants. However, if minimum efficient scale can only be achieved at very high levels of output relative to the whole industry, the number of firms in the industry will be small. This is case with natural monopolies, such as water, gas, and electricity supply. (Economics Online, 2018)

Global production, outsourcing, and logistics and outsourcing pros and cons

Over the course of the past couple of decades, outsourcing has become one of the most hotly debated topics in American politics. Nobody likes to see jobs go overseas, and lawmakers love to use a firm stance against the threat of outsourcing as a rallying point for their wider business agendas.

But in the realm of small business, outsourcing doesn’t necessarily mean taking work overseas. When small business owners talk about outsourcing, they’re usually thinking of farming out content work to freelance writers, hiring an accountancy firm to take on the book keeping or relying on an employment agency to track down and deploy hired help.

In the right context and deployed shrewdly, outsourcing can be a fantastic way for small business owners to improve efficiencies and bolster their company’s bottom line. But that doesn’t mean the practice isn’t without its own disadvantages, too. Outsourcing isn’t right for every situation, and so you’ve got to think long and hard before investing time and energy in farming out work.(Riggins,2017)

Benefits of Outsourcing

Companies are able to enjoy the following benefits through outsourcing:

• A decrease in operational expenses
• Increased reach
• Cost and efficiency savings
• Operation control
• Focus on tasks that can help yield more earnings
• Access to quality talents that are experts in handling non-core tasks
• Enhance the efficiency of business processes
• Enjoy a boost in sales given the mature process of attaining customer satisfaction that a BPO company has

Disadvantages of Outsourcing

Outsourcing is the right approach for some companies – particularly those that take the time to properly structure an agreement that drives cost reduction, takes advantage of outsource provider best practices, clearly defines scope and service levels that meet the company’s needs, and allows the company to focus on its core competencies. When well planned and executed, outsourcing relationships provide substantial benefits to an organization.

• Lack of customer focus
• Failure to meet expectations
• Marketplace Pressures
• Financial Segmentation
• Synchronizing the deliverables
• Lack of Flexibility
• Confidentiality and security

References

Muñiz, S. (2018, April 4). What Is Outsourcing and Why You Should Care. Retrieved April 12, 2018, from http://andersongroup.ph/what-is-outsourcing-and-why-you-should-care/

Benefits of Outsourcing. (n.d.). Retrieved April 10, 2018, from https://www.flatworldsolutions.com/articles/benefits-of-outsourcing.php

Berman, J. (2017, February 01). UPS reports Q4 revenue growth but falls short of Wall Street expectations. Retrieved April 15, 2018, from https://www.logisticsmgmt.com/article/ups_reports_q4_revenue_growth_but_falls_short_of_wall_street_expectations

UPS Breaks Ground On New Salt Lake City Regional Operations Facility. (n.d.). Retrieved April 15, 2018, from https://pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1487857191612-124

Minimum Efficient Scale. (n.d.). Retrieved April 10, 2018, from http://www.economicsonline.co.uk/Business_economics/Minimum_efficient_scale.html

Riggins, N. (2017, February 21). 20 Advantages and Disadvantages of Outsourcing from Your Small Business. Retrieved April 15, 2018, from https://smallbiztrends.com/2017/02/advantages-and-disadvantages-of-outsourcing.html

UPS Breaks Ground On New Salt Lake City Regional Operations Facility. (2018). Retrieved April, from https://pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1487857191612-124

Savitz, E. (2013, January 17). Why Some U.S. Companies Are Giving Up On Outsourcing. Retrieved April 15, 2018, from https://www.forbes.com/sites/ciocentral/2013/01/16/why-some-u-s-companies-are-giving-up-on-outsourcing/#344bbd1665af

LICENSES AND ATTRIBUTIONS

“Reading: The Logistics of Global Business by Lumen Learning is licensed under CC BY-NC-SA 4.0 / A derivative from the “Original Work”