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Outsourcing Strategies and Risks Explained

The document provides an overview of outsourcing, highlighting its definition, benefits, and risks, as well as the distinctions between outsourcing and offshoring. It discusses strategic sourcing, make-or-buy decisions, and modern trends in outsourcing, emphasizing the importance of long-term supplier collaboration and effective procurement strategies. Additionally, it outlines what should and should not be outsourced, along with tools and models for successful outsourcing management.

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Edessy Mathias Wanyamala
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73 views20 pages

Outsourcing Strategies and Risks Explained

The document provides an overview of outsourcing, highlighting its definition, benefits, and risks, as well as the distinctions between outsourcing and offshoring. It discusses strategic sourcing, make-or-buy decisions, and modern trends in outsourcing, emphasizing the importance of long-term supplier collaboration and effective procurement strategies. Additionally, it outlines what should and should not be outsourced, along with tools and models for successful outsourcing management.

Uploaded by

Edessy Mathias Wanyamala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Outsourcing Introduction

Outsourcing = hiring external firms for activities previously done in-house.


Focus: strategic sourcing, global supply chains, risk, and cost efficiency.
Make-or-Buy Decision

Should we produce in-house or buy externally?


Depends on cost, capacity, control, quality, and expertise.
Outsourcing vs Offshoring

Outsourcing: 3rd-party involvement.


Offshoring: Moving processes abroad.
They are not the same.
Why Companies Outsource

• Reduce costs
• Focus on core
• Access specialized skills
• Share risk
• Generate cash flow
Risks of Outsourcing

• Loss of control
• Supplier dependency
• Confidentiality issues
• Quality concerns
• Morale impact
What & What Not to Outsource

Outsource: Non-core, repetitive tasks (e.g. HR, IT)


Do not outsource: Core competencies (e.g. strategy, innovation)
Strategic Sourcing

Long-term supplier collaboration


Focus on total cost of ownership, quality, and value—not just price.
Global Sourcing: Pros & Cons

Pros: Cost savings, access innovation


Cons: Long lead times, currency risks, communication barriers
Make-or-Buy: Bread Shop Case

Buy: $25,000 | Make: $24,000


Decision: Make (cheaper)
Evaluated using cost equations
Public Sector Cases: Tanzania & Kenya

Refinery closures (TIPER, KPRL) highlight need for solid outsourcing strategy & sustainability
Contracting vs Outsourcing

Outsourcing = outcome-based
Contracting = task-based instructions
Evolution of Outsourcing

1980s: Task-based
1990s: Vendor-based
2000s: Business partners
2010s: Strategic alliances
Modern Trends in Outsourcing

• As-a-service models
• High client expectations
• Strategic, innovative vendors in demand
Supply Chain Surplus via 3rd Parties

Surplus increased via: capacity, inventory, transport, procurement, and information aggregation
Strategic Sourcing Models

Nigel Slack, Abetti matrix, and hierarchical decision tools


Consider architecture, suppliers, and clockspeed
Product Types: Fisher Model

Functional: Predictable → Push, low cost


Innovative: Unpredictable → Pull, responsive
Procurement Strategies

Functional → low-cost countries


Innovative → fast, local suppliers
Combine demand & supply-side thinking
TPDC Case: Portfolio Strategy

Faced fuel uncertainty → used fuel rationing, option contracts, and restricted private transport
Strategic Sourcing Tools

• Spend analysis
• Political analysis
• Supply base evaluation
• Contracting and supplier preferencing
Lecture Summary

Outsourcing = strategic, not just tactical.


Use make-buy analysis, risk control, metrics, and legal compliance for success.

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