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Outsourcing in Supply Chain Management

Introduction

Outsourcing is a strategy used in supply chain management to reduce the overall running costs of a firm. For instance, firms procure material inputs or services from outside instead of generating them from within. The strategy aims at reducing the primary cost of establishing such a production or service department within the company. Because such establishments are capital intensive, the firm may opt to avoid such costs through outsourcing. International outsourcing is on the other hand used to ensure efficiency as the firm seeks to bring the services near to its clients and consumers. Although such outsourcing may provide benefits in terms of diversification of outreach and risk, the high cost involved in establishing a call center may trigger the bank to outsource such services from a firm located within the country under which the branch operates in. This paper seeks to analyze and discuss the outsourcing strategy used in supply chain management, specifically the call center for a bank.

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The reason why banks should prefer outsourcing their call center

The high amounts required in establishing a reliable and affordable communication infrastructure may be far from reach making the institution think of acquiring the services from outside. The growing telecommunication and internet expansion has also made such activities relatively cheap in the market. The company here will therefore evaluate the feasibility of the service and thus determine whether to own or buy it from outside. Because outsourcing or off-shoring passes the employment and other administrative costs to the identified firm, the principal firm is exonerated from all the risks related to the department. In some instances institutions such as banks are forced to offshore their call center to suit the language and the cultural system of the local people in which the branch operates. this will further bring quality service delivery as the local firm in which the services are outsourced are much aware of the cultural values of the people within that country.

The Scottish call center will therefore not be effective as it’s operated from a different country. If for instance, the bank is planning to establish its operations in the Indian market, it will be advisable for it to outsource call services from an Indian firm to enhance efficiency (Schniederjans, Schniederjans & Schniederjans, 2005, p.25). The Indian firm will effectively serve the needs of the bank’s clients as they are conversant with the market. The language will also not be a problem to such a firm as its operations are undertaken within the country. The low cost associated with the service will also be a saving to the bank which is out to maximize profit. Since the identified firm specializes in customer care services the bank will be assured of obtaining the best services at all times. The continued growth and maturity of the contact center outsourcers provide excellent services to their clients thus satisfying their customers. In most cases, the customer even never realizes that they are dealing with outsourcers. This is mostly if these firms operate effectively and efficiently.

Since a bank may have some key sensitive issues which may not be outsourced, the firms provides some in-house facilities which enable them to manage such queries. This facility therefore ensures that every issue relating to the customer is professionally handled. It also enhances customer trust and faith on the bank’s products and services. The increased satisfaction therefore attracts the more customers increasing the bank’s profitability (Barnes, D., 2008p.215).

It is also well reflected in the outsourcing industry that status quo maintenance is not enough, the firms are in this case required to keep on adding value to their clients. The continuous growth in the sector makes it a good alternative whenever the firm needs growth and continuity into the future. Since the service off shoring may require some transfer of valuable information into the offshore site, the move will add some technological know-how into the respective destination. Such transfers also assist in the growth and development of various regions in a particular country. The growing need for market responsiveness has increased the outsourcing demands. This is because banks and other firms are only interested with maximizing their profits and they therefore do all they can to reduce cost in their operations (Goodman & Hastak, 2006p.14-27). The firms also seek to transfer risk and responsibilities to other companies and they thus mitigate those using external companies. Many companies therefore prefer the horizontal integration in the outsourcing industry in order to effectively relate well with the involved parties. The outsourcing industry has significantly low cost considering the increased human capital generated in the developing countries. The large corporations such as banks will therefore choose to use it instead of establishing an in-house service department which will cost more to the firm. The advanced computerization that banks operates in makes it easy for them to outsource their services as it is easy to coordinate and monitor.

Negative implications of outsourcing

There are however some supply chain concerns that companies may end up losing the overall control and visibility due to the outsourcing strategy. This is more so depending on the status that the outsourced companies possesses in the principal company. But this will however be wholly determined by the importance of the service and the value which it’s add to the firm’s overall welfare. There is some inherent risk of uncertainty when the customer acknowledges the fact they are dealing with an outsourced firm. This risk however is due to the negative perception that the consumer have towards the whole outsourcing process. Most of the customers thinks that the basic reason why a firm will decide to outsource a service or a product is due to some financial constrain. But this is not the case as there are other factors which push a firm to use an outsourcing strategy. The service outsourced may not be of great economic importance to the firm. In such a scenario the firm will prefer to delegate the responsibility to the third party which happens to be the outsourced company (Sadler, 2007p.199).

The considerable rise of such companies in the market has led to huge job insecurity in the market. This is because the employing companies have an alternative choice incase its employee’s increases their salary and motivational demands. The move therefore receives a lot of rejection from the company staffs as they fully acknowledge that their services too can be outsourced. The outsourcing strategy therefore ends up receiving great rejection from the management despite its effectiveness to the company.

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As knowledge, information and technology is transferred from one country to another, competition in the industry increases. The competition concern mainly comes in because the outsourced company will consistently add value to the client firm making it more competitive than other firms in the same industry. The transfers are also said to be a huge loss to the national or domestic economy under which the firm initially operated in. capital freight, and also some brain drain effect will be felt as the firm re-locates its operations to another country.

The growth of the outsourcing strategy raises some educational concern to the respective governments. This is because the availability of adequate expertise and knowledge is also a key determinant that causes outsourcing in a company. If many companies in a certain country prefer outsourcing their services from other countries, then that government should do something to raise the standard and level of its education system as it may be far below others in the world (Monczka, Handfield & Giunipero, 2008, p.749).

Recommendation

The bank should consider outsourcing its call center in order to ensure efficiency in the service delivery. The move will also seek to effectively address the needs to the bank’s customers as more quality services will be accorded. Outsourcing will also encourage professionalism in the banking services as the firm’s guarantees quality for their continuity. Considering the capital intensity involved in establishing a call center in the respective country and the cultural diversity in the region, it will be more economical if the bank outsources the service. The easy and close monitoring between the parties involved also encourages such contractual obligation.

Reference

Barnes, D., 2008. Operations management: an international perspective. London, Cengage Learning EMEA. (Online). Web.

Goodman, A.S. & Hastak, M., 2006. Infrastructure planning handbook: planning, engineering, and economics. London, McGraw-Hill Professional. (Online). Web.

Monczka, R.M., Handfield, R.B. & Giunipero, L., 2008. Purchasing and Supply Chain Management. London, Cengage Learning. (Online). Web.

Sadler, I., 2007. Logistics and supply chain integration. London, SAGE. (Online). Web.

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Schniederjans, M.J., Schniederjans, A.M. & Schniederjans, D.G., 2005. Outsourcing and insourcing in an international context. New York, M.E. Sharpe. (Online). Web.

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