Free «Operations Management Principles» Essay Paper
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As opposed to the earlier version or belief whereby business outsourcing was an aspect of big companies’ strategy, in the contemporary world it has been taken as a norm due to its tremendous benefits. Many professionals attribute the popularity of he concept of outsourcing to two important benefits, that is, it is a cost saving measure as well as a strategic initiative commonly employed by business firms to edge out others (Gilley and Rasheed, 2000).
One of the vital value chain airline components liable for outsourcing by many airline companies is the Aircraft clean up which in normal circumstances require high level expertise and operational costs. If this service is provided by the company, it would involve employing the cleaning personnel and purchase of equipments which by all dimensions will require huge capital to effect. Another airline aspect that can also be outsourced for the same reasons above is the janitorial activities like baggage handling which besides being an expensive undertaking, is also a sensitive undertaking that require high level expertise and precision. Air craft periodical and occasional modifications as well as upgrade and maintenance is another amended outsourcing component. They are costly operations that require not only machinery but huge experienced technicians that are costly to employ (Gilley and Rasheed, 2000).
Manufacturer of Cross-Country Buses
Outsourcing services in the manufacturing of cross-country buses is believed to play two critical of ensuring efficiency and cost reduction. In pursuit of these two critical components, many manufacturing firms often outsource supplies of materials which act as raw materials to the company. It is in supplies where companies need to outsource not only from reliable vendors, but also those that promises high efficiency and least costs. Human resource services is also another component of companies’ operations that is worth outsourcing. Human resource aspects such as recruiting and training of new personnel are a costly exercise especially when a company experiences high staff turnover. Besides these aspects being costly, getting the best from amongst the many candidates might be a tricky affair that requires another high level expertise to determine the best, an expertise that can best be provided by human resource consulting firms. In this case, the most critical services to be outsourced would be supplies management which he company cannot do without (Kakabadse, 2002).
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Financial sense in outsourcing
When the goods are produced by the Vendor:
Cost of production = vendor variable costs × total units produced
Therefore, Cost of vender production = 13 × 10000 = $130000
When the goods are produced by the company:
Cost of Production = total variable costs + total fixed costs
Cost of Production= (10 × 10000) + 60000+ 100000= $260,000.
From the calculation above, it is evident enough that the concept of survives outsourcing is much more effective in terms of costs reduction than when the goods are produced by the company. When goods are produced by the company, they actually cost twice as what the outside vendor would charge the company. Firms engage in operations with an aim of maximizing on their returns, hence, outsourcing from the vendor assures the company of an improved outcome.
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