Supply Chain

INTRODUCTION

The impact of outsourcing on the United States cannot be ignored. As the world has moved into a global economy, many things have changed in the U.S., and some feel those changes are not for the betterment of America. In 2003, outsourcing generated $298.5 billion in total global revenues, and many estimate by the year 2015, as many as 3.3 million U.S. jobs will be lost to such countries as India, China, and Russia. Those 3.3 million jobs translate into $136 billion in wages (Kelly, pg 1). How will this change affect our country? Is the increase in globalization a noble redistribution of wealth, or will it have a negative impact on our country from which we may never recover? These are among the many questions that are being asked by Americans as we continue to enter a new world that will blur the lines between individual countries, and will maximize the efficiencies of companies around the world.

In this paper we will explore the history of outsourcing as well as analyze factors that determine successful outsourcing and the impact of outsourcing on customer service management. It is our hope that by analyzing these subjects we will come to a better understanding of how outsourcing is influencing our global economy.

HISTORY

Outsourcing has been around for several thousand years. In early civilizations, when villages were established, it became important to specialize in certain areas so trade could occur with other communities. Villagers would specialize in the development of food, tools and other appliances that made every day living easier. Outsourcing in this way allowed villages to focus on areas of production they were particularly good at. These areas of specialization are known today in business as a company or organization's core competencies. (Kelly, pg.1)

Even though there are evidences of outsourcing in many early civilizations, very few instances of outsourcing are recorded in the early years of the United States. One of the few examples of outsourcing in the U.S occurred when the manufacturers of covered wagon covers and clipper ships' sails found it would be less expensive and more efficient to outsource the manufacturing of these products to Scotland. Cheaper labor in Scotland as well as cheaper raw materials imported from India meant the overall cheaper production of the covers and sails. As a result, the manufacturers of these products increased overall profit, and it looked as if outsourcing was a move of pure genius by the manufacturers. They were able to focus on their own core competencies while at the same time exploiting the core competencies of the Scottish manufacturers (Kelly, pg. 1).

Although there were a few success stories like this, companies throughout the world in general were slow to implement outsourcing strategies into their organizations. Even as late as the industrial age, very few companies outsourced any of their operations. Many companies in the 1800's and 1900's were vertically integrated, which means that from the raw materials to the finished goods, all of the operations in the production of a finished product were taken care of by the company. This even meant mining the ore at times to produce metal necessary to manufacture a product. (Cyfuture, pg. 1). Not all companies followed this model, but for the most part, this was the general philosophy behind manufacturing during this time period.

During the industrial revolution, many companies began to focus on specialization, which in turn paved the way for outsourcing to become accepted as good business. This specialization started with service industries. The large scale growth of services like insurance services, engineering services and many others lead companies to outsource and call upon these services from other companies, so they could become more specialized, and focus on the things they were really good at. During this first wave of popularity in outsourcing, companies usually outsourced within their own city, and it was generally unheard of to outsource to another country (Cyfuture pg. 1).

The outsourcing of manufactured goods was the first real type of outsourcing to go offshore. Offshore outsourcing as the name implies, deals with outsourcing to other countries. The decreased cost of transportation and logistics made it economical for companies to outsource to other countries. Also, the increased education and skills of citizens of other countries as well as lower wages made outsourcing business to these countries even more appealing (Cyfuture, pg.1). The increased popularity of outsourcing manufacturing led to the outsourcing of other facets of business in the 1970's such as companies sending their payrolls and accounting work abroad for processing.

Today, outsourcing has moved to a whole new level, as companies now outsource business in the fields of information technology, call center operations, and data transcription. It seems as if outsourcing has become a permanent and important part of how we do business today. Citizens of other countries are ready and willing to learn skills and trades that allow them to specialize in certain areas for sometimes 1/5 the cost.

FACTORS

When a company is trying to decide whether or not to outsource, they need to realize that outsourcing their business to another company can be a very complex issue. There are several factors they should consider. Some of those factors are listed below:

* Environmental uncertainty

* Competition in the supplier market and the ability to monitor supplier's performance

* Relationship of product/service to the firm's core competencies

* Flexibility needs

* Financial needs

* Expansion needs

* Improvement needs. (Bozath pg. 299 and Greaver pg. 295)

Through either one or many of these factors, companies are able to decide whether or not they should outsource. Though we realize there are many more than just these factors, these are a few common factors that companies consider when choosing either to or not to outsource.

First, environmental uncertainty. If the environment is unstable, then the company will not want to take the risk of investing in an unstable asset. For instance, if a company needs apples in order to make their new apple