Wonderful Widgets

The solution to Fantastic Widgets’ rising operational costs would be to outsource the components required for Widget production to a range of providers. Based on current data on customer history and knowledge, outsourcing is advised as the best alternative to assist decrease operational expenses associated with in-house production of Widgets parts. Because current information indicates that clients do not attach value to the elements, there is no competitive advantage associated with the parts, and the clock speed is modest, entrusting diverse vendors with the provision of the Widgets components is the most viable option. Additionally, since the components are functional but not innovative parts of the product, there will be low-profit impact and supply risk. Therefore, it is essential that the company considers using multiple suppliers when outsourcing. It can adopt a minimizing total landing cost strategy to solve the operational costs issues as a result of fixed and variable costs involved in the production of the components.

Implementation

In the implementation of the outsourcing approach, the company has first to identify what needs to be outsourced which in this case are the components of the Widgets product. The supply manager then has to develop a business case to justify the decision to outsource. The company then comes up with a list of suppliers and sends a request for proposal to them. After the supplier proposals have been received contractor completion is held where the recommendations are evaluated and scored. The assessment exercise can involve face-to-face meetings with the supplier to allow them to shed light on their response based on the requirements of Wonderful Widgets. The suppliers are qualified out until the necessary number is attained. Contractor selection a by negotiations where the original request for proposal sent to the supplier and the supplier proposal received involves into a contract between the contractors and the company. The contractual agreement has to include the pricing structure and the general conditions under which the parties intend to work, and all these must be documented. Both sides have to sign to three important dates: the contract signature date, the effective time when the terms of the contract become active and the service commencement date when the suppliers take over the services. Information on termination of the agreement must also be apparent in the deal.

Challenges in Completing the Scenario

There are numerous challenges in completing a procurement outsourcing process. One of the issues involved in finding the right supplier. Taking the case of Wonderful Widgets where multiple suppliers are used, getting appropriate suppliers becomes quite time-consuming. The supply manager has to lead a team that will ensure that out of the shortlisted suppliers; only the most qualified are selected to provide Widgets components for the Wonderful Widgets Company. This task is ordinarily tiresome and takes long.

Having a healthy and skilled team to manage the procurement outsourcing process to ensure that costs are contained is another challenge. The team must be committed to run a quality sourcing exercise where the company’s requirements are analyzed and captured to prevent over expenditure on needless high specification services and products. There has to be people to continually manage the process and adherence of the suppliers to the contract and also technology to monitor expenses to eradicate issues of over budgeting.

Another challenge is obtaining up-front capital to acquire the appropriate procurement technology and justify how the high cost involve in the acquisition of such technology will enable reduction in cost. There has been massive development in technology regarding procurement outsourcing in the recent years including eSourcing, spend analytics, and Supplier and Contract Management. Moreover, other improvements include savings tracking and budget management, workflow, and tail spend management/spot buying among others. Effective outsourcing is achieved through a holistic application of these technologies combined with market intelligence. However, the capital requirement for the technologies is often prohibiting in the short run and the supply manager has to make sure that correct strategies are employed so that the company’s outsourcing objective of reducing operational costs is accomplished.

Outsourcing also results in a reduction in control over daily purchasing activities. Therefore, it is essential that the company has an enforceable and measurable service level agreement with the suppliers to maintain a reliable business. Additionally, fluctuation in prices over time is also an issue. Outsourcing will lock the company into a long-term contract with specific pricing structures even though prices are like to change with time. Such inevitable changes may make it difficult for the outsourcing sales promises to add up with delivery realities causing frustrations in the contract.

Visibility of the savings made is also a challenge that the supply manager faces with the outsourcing. The reason why Wonderful Widgets decided to outsource the production of the widgets components was to reduce its operational costs. Therefore, it means that the savings realized must be tracked and measured to align benefits to business outcomes, for instance, earnings per share, operational profits, and working capital. It is necessary to note that it is only when savings can be audited and measured that the procurement outsourcing becomes a vital part of the company’s performance planning process.

How Strategic Alliances Impact on Procurement Outsourcing Strategies

Strategic alliances impact procurement outsourcing strategies especially its effectiveness. Developing a collaborative partnership with the supply chain partner helps in understanding their value thereby improving communication between the parties. Additionally, the cooperation of the players in the alliance enhances sharing of information and utilization of resources which in turn ensures the satisfaction of the end-consumers.

Strategic alliance relationships lead to efficiency in various areas of procurement outsourcing strategies including facilitating management of conflicts that arise from the supply channels, ensure that products are delivered on time, and helps an in the provision of a quick response to complaints.

Strategic alliance relationships lead to efficiency in various areas of procurement outsourcing strategies including facilitating management of conflicts that arise from the supply channels, ensure that products are delivered on time, and helps an in the provision of a quick response to complaints. Some strategic alliances provide detailed agreements concerning reaction to consumer complaints and products problems and offer great consistency in the supply of semi-assembled, parts, and finished products. Furthermore, it helps enables discretion sharing business strategy, prompt reaction to price issues and quotes requests, advance the loyalty of the suppliers and the productivity of the supply chain.

When the alliance is built based on sharing of clean and trusted data they help in ensuring a match between the demand and supply which leads to lowering of costs. A healthy strategic alliance in procurement outsourcing enables maintenance of the protection and sustainability of resources. Moreover, it allows the partners to learn from one another which help in developing competence and enables the each party to concentrate on various supply chain stages. In most procurement outsourcing strategies different parties bring distinct skills that are essential in improving customer satisfaction.