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Models for Investor Delivery (Making More by Doing Less (Advantages of…
Models for Investor Delivery
Making More by Doing Less
Definitions of Outsourcing
Substitution
Abstention
Advantages of Outsourcing:
investment in plant and equipment can be reduced
in house production increases organisational commitment to a specific type of technology and may constrain flexibility in the long run, however firms focusing on outsourcing can switch suppliers as new, more cost effecting technologies become available.
manufacturing costs decline
allows for quick responses to changes in the environment, that don't don't increase costs associated with bureaucracy
increased focus on organisations core competancies
promotes competition among outside suppliers - higher quality of goods and services in the future
spreads risk
Disadvantages of Outsourcing:
suppliers use market knowledge to begin marketing their own product
asian companies have achieved market dominance in this way
longer lead times resulting from spatial dispersion
loss of long-run R&D competitiveness
requires shift in overhead allocation to those products or activities that remain in house
declining innovation by the outsourcer/client
cost saving might not be as great as they seem
loss of overall market performance