Outsourcing Supply Chain Case Study

Converging cultures and exposure to different markets due to globalization has led to a

complete change in the requirements of consumers that has phenomenally influenced the

supply chain – its operations and functions. Some of the major changes observed at the

supply side include the soaring retailers in the market, fragmented markets, growth in

telecommunication and distribution channels. Therefore, in order to sustain their performance

in the dynamically changing market conditions (Hagel, et al 2008), it is important for retailers

to do internal as well as external analysis to attain competitive edge in saturated markets

hitherto. For this, retailers generally target to rationalize their different processes and key

functional

Some primary reasons that lead to conflicts are that in the course of rationalizing the

functional areas in the supply chain, their mutual dependency and inter-functional relations

between the in- house and outsourced activities are not taken into consideration. All this

might lead to increased costs, high operating cycles and opportunity costs. Therefore it is

important to align and integrate the outsourced activities nowadays to help reduce the costs to

a great extent. In the wake of this, it is essential to evaluate the role or contributions of

outsourcing in the retail supply chain to enhance the value of the complete chain and not just

individual areas. It is crucial to understand the advantages and disadvantages of outsourcing

for retail supply chain management.

Literature Review

Following the consumption pattern of the consumers in terms of products supplied by the

retail sector, it has been observed that they are extremely thrifty while spending money to

fulfill their basic, day-to-day requirements. In wake of this, it is the goal of supply chain

management (SCM) to meet these consumption patterns by ensuring the supply of

As against the belief of many practitioners, operations

do contribute to the strategy of the business. Immediate interfaces and connections have been

developed within two functional areas – for instance link between purchasing departments

and manufacturing department or logistics and marketing (Lambert, et al, 1999); however,

these interfaces are not all pervasive. But if outsourcing is done within these functional areas,

then integration of the same with the in house activities is very important.

The intense fragmentation and multiple levels of channels have endangered the existence of

these retailers as well as the native retailers, as a result of which they have entered into fierce

competition by relying on the ‘lowest price’ game and achieving economies of scale. Most of

these retailers have focused on forward and backward integration in order to achieve cost

reduction. While doing so, they have also resorted to outsourcing of some of the activities

within the supply chain. Couple of reasons that favors the alternative of outsourcing of

activities includes:

a. Lack of good labor within the firm

b. cheap facility available outside the firm