Platt Perspective on Business and Technology

Outsourcing as a business paradigm – 6

Posted in book recommendations, outsourcing and globalization by Timothy Platt on August 8, 2011

This is my sixth installment in an ongoing series on what, at least in traditional form can only be viewed as a failed business strategy – traditional model outsourcing. I have been posting this in a separate directory, Outsourcing and Globalization to help draw a sharp distinction between this, and other, post-traditional approaches that I have been touching on and citing in my other directories, and particularly in:

Business Strategy and Operations and
Ubiquitous Computing and Communications – everywhere all the time.

In Part 5 of this series I started building a foundation for an outsourcing alternative to the traditional approach, and I will continue that here, starting with a list of features or qualities that any viable alternative would contain or support.

• A viable alternative to traditional outsourcing would limit circumstances and levels of extraneous commitment where a business invests its own organizational resources outside of its core capabilities.
• It would preserve its resources, expert personnel definitely included, that collectively support and sustain its offering unique value propositions and its core capabilities requirements for producing and providing its products or services.
• It would do this while limiting risk of inefficiencies from leaving expert hands idle, or from keeping them busy but at reduced, less competitive efficiency in the marketplace.

I have written about the Li & Fung Group a few times now, primarily doing so as a matter of discussing that company itself (e.g. see Reexamining Business School Fundamentals – business law in a rapidly changing collaborative and competitive context.) Also see:

• Fung, V.K., Fung, W.K. and Wind, Y. (2008) Competing in a Flat World: building enterprises for a borderless world. Wharton School Publishing.

Li & Fung Group builds and manages dynamic supply chains, assembling, modifying and closing them down as needed, in addressing immediate, real time market needs. In this, they enlist the participation of partner companies from their stable of vetted partners to manage and fulfill specific production and distribution tasks and assignments, and when those tasks and assignments are individually completed, the supply chain systems set up to take care of them are broken up and resources that had been committed to this work are freed up for reuse on new projects.

As I said above, so far in this blog I have primarily written about this as a business model and case study from the perspective of Li & Fung as a central organizer. With this posting I turn to look at this type of system from the perspective of the individual business that would enter into these on-the-fly supply chain-driven solutions.

The usual point cited in that regard is that entering into this type of supply chain system allows participating partner companies to make fully use of their productive capacity, and reduce or even eliminate down-time. That, in and of itself, could help a great many businesses avoid the lay-offs and downsizings that traditional outsourcing generally involves. This particularly applies where participation in a network and taking on outside-derived assignments would widen the range of applications that in-house production line capacities and capabilities can be applied to, opening up new types of opportunity to keep in-house systems profitably engaged.

There is a second area of opportunity here, that long term would offer much greater returns on investment and much great long term value to the participating businesses.

• A viable alternative to traditional outsourcing would both keep a business’ production lines and supporting systems open and in place, and also facilitate that business commoditizing its systems as a source of unique value propositions.
• Now, what would by traditional outsourcing analysis appear to be a loss of competitiveness from maintaining inefficient production lines becomes a starting point for building new sources of value and revenue.

And this is very important:

• If some of the revenue generated from using this production capacity in support of supply chain solutions, is folded back into that production line and its operational support, that creates opportunity for building a virtuous cycle, where these systems can be made more efficient and effective resources to include in these supply chain solutions, and for higher level, more profitable per-unit assignments.
• This means breaking out of the settled and even shrinking marketplaces that would most powerfully compel businesses to turn to traditional outsourcing in the first place, and into more open and even expanding markets where that would not even need to be considered.

I am going to turn in my next series installments to a topic area that has in effect been hanging over this entire discussion since I first wrote and posted Part 1 to it: automation.

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