Managing Production Outsourcing Risks in Chinas Apparel Industry - Assignment Example

ARTICLE REVIEW Name Institution Professor Course Date Kam, B., Chen, L., & Wilding, R 2011,’ Managing production outsourcing risks in China’s apparel industry: A case study of two apparel retailers’, Supply Chain Management: An International Journal, 16, 6, pp.428-445. Question One The article by Kam, Chen and Wilding (2011) employs a case study approach to explore how Chinese apparel retailers functioning in diverse markets control their production outsourcing dangers. The authors also examine why the Chinese apparel retailers choose to manage outsourcing dangers. According to the authors, the choice of production outsourcing risk management policies depend on what the apparel retailers consider as the most significant value that their commodities offer to their clients (Kam, Chen & Wilding 2011, p.428). To manage the production outsourcing risks, the retailers who considered quality of a product as a major value driver employed formal contract and selection of manufacturer for process management. Those retailers that considered variety and newness as a driver of value cultivated a committed and powerful linked founded on Guanxi to attain quick access to market. Kam, Chen and Wilding (2011, p.439) assert that the option of outsourcing management strategies with respect to Chinese apparel industry depends on what apparel retailers view as their commodities’ value drivers. Companies that rely on technical superiority to attain product quality and brand image as important value drivers emphasize on process control and manufacturer choice. Other apparel retailers consider variety and newness linked on swift product change-over because value drivers would be more disposed to encourage a powerful and committed business partnership. Kam, Chen and Wilding (2011, p.428) assert that in the fashion industry, clients’ desires for variety and newness have instigated the continuous shortening of product life cycle in apparel production. Speed-to market is considered as a major expectation. While apparel manufacturers seek to attain speed-to-market via diverse means, production outsourcing has become an extensively popular strategy. Outscoring production offshore to lower cost is a widespread practice in the fashion industry. Outsourcing depicts the upshot of an organization’s cost economizing conduct (Kam, Chen & Wilding 2011, p.429). Chan, Pringry and Thatcher (2008,p.283) assert that lower production costs of outsourcing vendors and the call for a firm to develop an adaptable management structure drive organizations into engaging in outsourcing. Outsourcing decisions rely on the suitability amid a firm’s capabilities and resources base, and resources accessible externally, besides transaction conditions. Strategic outsourcing allows firms to take advantage of the capabilities of vendors, center on core competencies, enhance response to fast-shifting customer demands and saving costs. However, Kam, Chen and Wilding (2011) confirm that not all organizations that engage in outsourcing are successful in obtaining the expected benefits (p.429). Unnoticed risks sealed in outsourcing contracts besides selection of unsuitable outsourcing strategies instigate low pricing. Kam, Chen and Wilding (2011, p. 429) highlight major causes of outsourcing risks which include selection of unsuitable vendor, ignoring personnel, custom, language and cultural issues, outsourcing inappropriate activities, ignoring concealed costs, lack of control of the outsourced procedure and failure to establish an exit strategy. Production outsourcing could trigger loss of clients, complexity in shifting commodities while reacting to market demand, loss of critical skills, quality variability issues and loss of market share. Outsourcing production holds the potential to slow an organization’s reaction to market shifts given the commonly long lead-moments of clothing production. Offshore outsourcing further lengthens an organization’s production lead time; weaken its rapid-reaction ability to shifting market condition besides dampening its supply chain agility. In this regard, Kam, Chen and Wilding (2011, p.429) advocate for the employment of multiple perspectives to prevent the wide assortment of outsourcing risks. The motivation behind the study carried out by Kam, Chen and Wilding include the fact that there lack an emphasis on outsourcing strategies that function to lower outsourcing failures. While there are studies that underscore the significance of protecting an organization’s value from outsourcing risks, there lacks studies that ascertains how value protection influences firms’ choice of strategies. Moreover, while a lot of literature documents a wide range of outsourcing policies, few studies assesses under what conditions a given outsourcing policy would be most appropriate. Kam, Chen and Wilding (2011) therefore seek for strategies that hold the ability to prevent outsourcing failures. Their ideas to ascertain strategies that prevent outsourcing failures is influenced by the fact that most previous studies focus on ascertaining policies that help in attaining outsourcing failures. Question 2 According to Aron, Clemons and Reddi (2005, p.38), managing a supply chain is a more difficult and intricate affair than managing an individual organization. While supply chain is compelled via customer demand, it is limited through its own internal resources. These resources may not be under ownership of the same organization and it’s probable that one organization does not hold the ability to attain surging customer demand (Aron, Clemons & Reddi 2005, p.38). Every firm operating in the supply chain may function at a reduced utilization given that there could not be enough demand in the market for commodities from the supply chain. There are bottlenecks inside the supply chain and to properly manage supply chain, organizations must understand the location of their bottlenecks internally and in the supply chain. According to Aron, Clemons and Reddi (2005, p.38), the dangers linked to outsourcing are the principal drawbacks to the development of business process outsourcing, particularly cross-border outsourcing. Aron, Clemons and Reddi (2005) claim that besides technological enhancements in management of risk, firms can lower the danger of opportunistic conducts experienced by buyers through redesigning work flows and portioning work among numerous vendors, augmenting the range of activities suitable for outsourcing (p.38). Suitable outsourcing does not imply outsourcing as much as possible, or outsourcing at the lowest probable first-year price, but proper outsourcing concerns attainment of the best permanent risk-adjusted rate of returns . Aron, Clemons and Reddi (2005, p.38) affirm that outsourcing of intricate business procedures is novel and the dangers are hardly comprehended by customers of their outsourcing consultants. Most organizations judge their performance based on how much discount they force the vendor to accept. However, Kam, Chen and Wilding (2011, p.429) affirm that under-performance or non-performance of capable vendors prevent a business from attaining the benefits of outsourcing. The non-performance and under-performance of vendors also disrupts a firm’s business processes thereby creating dysfunctionality. Outsourcing holds major risks which include dependence on suppliers and loss of competitive resources (Kam, Chen & Wilding 2011, p. 429). Loss of competitive resources instigated by outsourcing essentially suggests an attrition of major business values for a given firm. Dependence on suppliers implies that their under-performance or non-performance can prompt a firm to lose its competitive resources (Kam, Chen & Wilding 2011, p.429). To prevent risks associated with outsourcing, understanding value protection as a crucial aspect in gauging outsourcing upshots is paramount. Supply risks upshots include incapacity to attain customer needs and threats to the life and safety of clients. Kam, Chen and Wilding (2011, p.429) claim that outsourcing risk management is an exercise in value defense which functions to lower the prospect of delivery failures. With respect to value defense, outsourcing risk management entails comprehension of an organization’s value drivers that instigate attainment of customer expectations (Manuj & Mentzer 2008, p.194). Key value drivers include service and product attributes that a firm views as essential in creating value that customers appreciate. According Soinio, Tanskanen and Finne (2012, p.32), customers demand more value-added services. Firms that are capable of managing their links among external firms and manage their industrial territories hold the potential to gain a competitive advantage. The fundamental concept of networking entails managing relationship among suppliers to lower transaction costs besides increasing value in industrial networks and chains (Soinio, Tanskanen & Finne 2012, p.32). The findings highlighted in the article relating to outsourcing risk management strategies are essential and applicable in supply chain management. These findings indicate that risk management hold considerable impacts on the success of a firm. Risk management strategies helps firms in sourcing for capable and health suppliers besides developing abilities in suppliers and working closely to bring quality products ( Kam, Chen & Wilding 2011, p.436) According to Braunscheidel and Suresh (2009, p.120). Risk management is developed as a procedure that is parallel to the core ones, promoting the core procedures and acting as a subordinate to them. Risk management procedure is equipped with distinct objectives, procedures and structures. Supply chain management cannot exist independently without risk management strategies. Risk management in supply chain instigates improved reliability, visibility valuable from the common supply chain management perspective. Risk management strategies enhance entity reputation and image, and its position against its competitors (Machowiak, 2012, p.280). Outscoring risk management strategies assist supply chain in coping with vulnerabilities through supporting robustness and agility. Robustness and agility hold major effects on supply chain customer value and the entire business performance (Wieland & Wallenburg 2012, p.887). Risk management strategies in firms would facilitate reduced costs, adds value to stakeholders besides enhancing proper use of resources, infrastructure and time hence increased productivity. Outsourcing risk management strategies help in mitigating transaction and operational risks in outsourcing through comprehending the flow of the outsourcing process. Visiting production sites to assess product quality, ranking manufactures, screening producers besides keeping contractual relationships enhance customer value. Question 3 Soinio, Tanskanen and Finne (2012, p.32) underline different procedures for improvement which include creating alliance links, making suppliers responsible to develop danger mitigation plans, upholding common blueprints for products besides establishing industry principles that lower supply risk. Similarly, Kam, Chen and Wilding (2011, p. 430) claim that scores of organizations depend on connections and friends to develop their businesses. With respect to the CL China case study, the company upholds its image and credibility to attain quality standards besides developing synergistic connections with its valuable production partners (Kam, Chen & Wilding 2011, p.436). On the other hand, TY Apparel conducts unsystematic commodity quality assessment, rank its outsourced manufacturers founded on their production performance, make periodic production inspection visits to outsourced producers to assess product quality, and also employed the relational ties with its suppliers Kam, Chen & Wilding 2011, p.438). From the two case studies, the authors confirmed that the two companies adopted a screening process to choose prospective producers, employed short-term fixed-price contracts to involve chosen suppliers as a way of testing their cooperation prior to signing any contract with them. The two companies employed risk management perspectives that linked to the temperament of their commodities and market environment (Kam, Chen & Wilding 2011, p.436). These two aspects compelled the value of their services and products. The risks of their commodity value eroded following the fact that production outsourcing determined the defense mechanism for addressing dangers arising from the outsourcing threats. The firms emphasize on selection of manufactures and process control as major drivers of value. The article provides an understanding that there is no silver bullet or step by step process of controlling risk liked to outsourcing. According to Irina and Ioana (2012, p.1066), the outsourcing process appears to be smooth, but in real sense, it is a rather intricate, strenuous and sophisticated process. Outsourcing risks are extremely essential and must be viewed as a source of failure or success. Different firms employ different perspectives to risk management. Every outsourcing process calls for a mental predisposition to ponder things through and assess competing risk management strategies. Although there are different risk management strategies, not every strategy is appropriate for all outsourcing occurrences. It is not adequate to single-handedly implement the strategies, but the most appropriate method to control risk is via organizational-supplier relationship as well as through psychological contracts. It is important to recognize several aspects such as inconsistent and poor product quality, complex and cumbersome legislative needs, trade regulations, complex quality inspection, convoluted contractual terms, unreliable and late deliveries, and culture, custom and language issues that may affect the outsourcing strategy. While firm-supplier relationship is essential in outsourcing and functions as an outsourcing risk management strategy, contractual comprehensiveness hold major positive effects on performance of outsourcing. Incapability to efficiently control outsourcing dangers can instigate losses that outweigh the expected benefits. According to Kam, Chen and Wilding (2011, p.429), outsourcing is an operational agreement amid a company and its external suppliers. In this process suppliers deliver to firms an agreed range of services and product that would be conducted within the firm. However, the choice to outsource or insource depends on whether an organization can enhance its performance via leveraging on the specific abilities of the supplier. In future global supply, outsourcing will become a well-established part of most business models given the evident strategies of managing risks in the outsourcing process. Outsourced actions release capital and management resources applicable in pursuing core prospects. It also develops flexibility in the sense that underperforming and non-performing vendors can be changed as supply or market conditions change. For firms to attain successful business performance, appropriate risk management strategies will in selecting the most suitable outsourcing and supply-chain. Businesses will evaluate their outsourcing strategy to ascertain risks and given numerous outsourcing risk management strategies highlighted in the article, firms will invest resources and time in deploying and designing proven outsourcing process that will aid in preventing outsourcing risks thereby moving firms towards performance excellence. Regardless of the nature and location of outsourcing, all outsourcing risks, must be considered prior to the commencement of the outsourcing procedure. Through risk management strategies, firms hold the ability and potential to identify the benefits and risks of outsourcing References Aron, R., Clemons, E, Reddi, S 2005, ‘Just right outsourcing: Understanding and managing risk’, Journal of Management Information Systems, 22, 2, pp.37-55. Braunscheidel, M., Suresh, N 2009, ‘The organizational antecedents of a firm's supply chain agility for risk mitigation and response’, Journal of Operations Management, 27, 119-140. Chan, H., Pingry, D, Thatcher, M 2008, ‘Managing the knowledge supply chain: An organizational learning model of information technology offshore outsourcing’, MIS Quarterly, 32, 2, pp. 281-306. Irina, S., Ioana, M 2012, ‘A study on the benefits and risks of outsourcing logistics in the Romanian industry’, Economic Science Series, 21, 1, pp.1066-1071. Machowiak, W 2012, ‘Risk management-unappreciated instrument of supply chain management strategy’, LogForum, 8, 4, pp.277-285. Manuj, I., Mentzer, J 2008. ‘Global Supply chain risk management strategies’, International Journal of Physical Distribution & Logistics Management. 38, 3, pp.192-223. Soinio, J., Tanskanen, K., Finne, M 2012, ‘How logistics-service providers can develop value-added services for SMEs: a dyadic perspective’, International Journal of Logistics Management, 23, 1, pp.31-49. Wieland, A., Wallenburg, C 2012, ‘Dealing with supply chain risks: Linking risk management practices and strategies to performance’, International Journal of Physical Distribution & Logistics Management, 42, 10, pp.887 -905. Read More