Complete a Case Analysis of a US Firm

Outsource manufacturing refers to the process of hiring people, personal and services to
either build, assemble or manufacture a given product. Companies usually choose to outsource
manufacturing services in order to cut on operational costs. Labor is one of the leading recurrent
expenditures in any company. Outsourcing parts of the overall production greatly cut the costs of
operating the company. Outsourcing production processes to companies with a comparative
advantage in the area of production are more profitable and convenient. The greatest advantage
of outsourcing is to utilize company assets like the plant, property, and equipment that are
already in place without making new investments.
Literature review
This research is a case analysis of how our US-Based Firm, The Whirlpool Corporation
can benefit by utilizing outsourcing strategy on organizational performance. The research also
focused on case studies of both Microsoft and Ford Motor Company. The purpose of the study
was to establish factors that will influence our decision to outsource and how that decision will
affect the overall performance of the company. The study was conducted in the period between
August 2017 and October 2017.
Outsourcing has been widely applied in the USA, with companies like IBM and
Microsoft taking the lead. As such Microsoft had outsourced more of its manufacturing
operations in China than in the USA by 2006. Microsoft has spent more than $750 million to
build a technology center that will expose Chinese hardware and software engineers to Microsoft
technology. (Chan, 2005)Back then, the objective for outsourcing was often largely restricted to
achieving operational efficiencies. Recently, the United States of America has experienced rapid
growth in Business Process Outsourcing (BPO) to areas where the cost of and product
development are fairly affordable. With Business Process Outsourcing, the target for the
outsourcing decision is usually long-term and aim at improving production efficiency and
enhancing the organization’s competitive edge in the marketplace as well as improving
shareholder returns (Maku & Iravo, 2013).
Outsourcing is one of the major strategies employed by many companies in order to
remain relevant in the dynamic business environment. Several other institutions that have been
our market rivals have chosen to outsource value-added chain from third parties. Once we take
our functions to the outsourcing level, we will cut on our operation cost, improve on customer
satisfaction and more importantly free the management to concentrate on the more critical issues
by ceding the non-core functions to specialized firms.
While many firms have adopted the outsourcing strategy in their operations to improve
their competitiveness, ours is yet to do so. Past studies examining the impact of outsourcing have
identified several main benefits of outsourcing. These include cost reduced internal capital
investment and better readiness to respond to turbulence in the business environment and
improved service delivery (Lawson, Tyler & Potter, 2014).
Business functions being moved offshore has continued to cause an increase in
complexity in terms of operations. Our organization will benefit more if we adopt offshore
insourcing. Offshore insourcing involves the establishment of a wholly owned subsidiary into the
international market and hiring local labor. Build-operate-transfer is another extension of this
model. Organizations usually build offshore companies under a local joint venture specializing in
a business process, operate them jointly for some time then transfer the business firm to internal
Outsourcing also means we will not invest a lot in developing our infrastructure. Our
market research and our business plan should give us a basic idea of our potential sales volume
and selling price, from which we can calculate a break-even point in terms of recouping our
initial investment when we switch to outsourcing.
Some of the benefits we are aiming at as a company is financial benefits aimed at
improving the balance sheet through asset reduction and elimination as well as increased cash
flow. Secondly, we are looking at strategic optimization which will mainly focus on allocation of
other resources and personnel to more pertinent and profitable activities once the outsourcing has
been fully implemented. The company will also improve more on developing better supply chain
management system as well as its abilities to select suppliers who are leaders in their specific
categories. Our choice to outsource will also improve our market discipline. The company will
get the opportunity to focus more on the company payroll and resources on growing our market
share. Outsourcing will further push our technological advancement in a bid to gain access to
state-of-the-art technological facilities. The company’s flexibility on resource management will
further improve attention on core operations as well as the development of new productions.
Outsourcing will have a great impact on the overall costs of the company. Outsourcing
the company outside the United States will result in cheaper labor as well as comparatively low
asset prices. Many companies in the States like the Microsoft, IBM, and Ford Motors, mainly
choose to outsource manufacturing processes in Latin America, Eastern Europe as well as Asia.
For our operations, Asia, and particularly India will be the best option. Additionally, we will be
encountering a whole lower cost in setting up the business. These costs will include land
acquisition as well as construction. The company also looks at benefitting from the economies of
scale; this effect is usually more pronounced in manufacturing where fixed costs are very high
and where pooling across organizations results in reduced production cost per unit. I have
studied an expertise curve and researched more on its relevance as conducted by BCG in the
1960s. The hypothesis indicated that companies reduce their cost of operation by 25% every time
its production was doubled. As companies expand on their production, the companies also
improved on means to use better equipment, as well as means to standardize and optimize
processes and how to better use the equipment. Employees tend to be more efficient and
committed towards better production thus lowering the cost of production. Outsourcing results in
lower fixed cost. Our company will, therefore, be responsible for paying the variable cost of
production only and we not incur an upfront fixed cost for setting up the operations. The barriers
to the market entry are also reduced considerably once the company engages a local company for
The number of establishments classified as manufacturing fell from nearly 355,000 in
1995 to under 259,000 in 2015. Statistics show that the annual rates of decline have been highest
in U.S. multinationals that engage in purely domestic, non-diversified production. The only
group of companies that experienced an increase in net establishments during this period is
multinational firms that focused more on developing outsourcing networks. This group serves as
a reminder that supply chain restructuring could also stimulate employment. However, even
though the move will impact jobs in the United States, looking at the global picture, more
foreigners will get employment. Total manufacturing employment in my sample statistics show a
fall of nearly 16 million workers in 1995 to 10.26 million in 2015. U.S. multinational
establishments constituted 34% of the 1995 manufacturing employment but contributed 40% of
the subsequent overall decline.
We will specify a structural model to causally link employment outcomes to foreign
sourcing at the firm-level. Given global trends in available data, it is difficult to construct an
instrument with predictive power for annual import production that is also uncorrelated with firm
size. For instance, a commonly used instrument is the “World Export Supply” measure, which
captures supply shocks in a partner country. Constructing this instrument with predictive power
desired at the firm-level requires keen analysis on products and countries from which the firm
sources. However, such weights induce a correlation with firm size because size is tightly linked
to firm sourcing patterns. A similar approach applies to other common factors such as transport
costs and tariffs.
We will present new stylized facts showing that a disproportionately large share of the
manufacturing employment decline in the U.S. can be attributed to U.S. multinationals.
Moreover, we find evidence that supply chain fragmentation and offshoring of intermediate input
production to developing countries has played an important role in this decline. To closely
examine this channel, I have illustrated a tight link between domestic employment and firm-level
foreign sourcing in a model of endogenous firm sourcing decisions. Key elasticity governs the
employment impact of changes in foreign sourcing in this framework. Structural estimation of
this elasticity shows that offshoring is a strong substitute for domestic employment.
This feasibility study for Whirlpool Corporation utilized a quantitative method of data
analysis. Coding involved assigning a numerical value to a non-numerical variable to minimize
the margin of error and assure accuracy during the data entry. After data coding and entry into
the analysis software, descriptive statistics were used to analyze the data. According to
Denscombe (2012), descriptive statistics is simply a process of transforming a mass of raw data
into tables, charts, with frequency distribution and percentages which are a very vital part of
making sense of the data.
In a highly competitive globalized market, Whirlpool Corporation must strive to be
innovative, unique, diverse and agile enough to meet equally dynamic needs of our customers.
Our competitive advancement is clearly driven by sober policy making and exemplary
organizational capabilities and strategies which will, in the long run, result in better quality,
efficiency, and flexibility (Maku & Iravo, 2013). The Whirlpool Corporation, today, is under
pressure to pursue mass specification and customization of our products. We need to improve
our flexibility while at the same time reap from economies of scale. This concurrent search for a
flexible system that is equally competitive and productive will only be met if we make a sound
investment in regard to deciding to outsource our production to India.
In conclusion, I highly recommend that Whirlpool Corporation should adopt strategic
outsourcing services and implement a well thought out outsourcing partnership in order to
continuously reduce operating costs for growth. This is the only way the company will remain
relevant in the fast-changing business environment. It should be noted that cost should not be
the only driving factor for. As a company, we should consider all the relevant factors while
evaluating the cost and the benefit of outsourcing, to ascertain that we optimize the process as far
as strategy in terms of reduced costs and risks are concerned. It is therefore imperative that
strategic outsourcing should not only generate short-term results in term of reduced costs but also
yield long-term benefits such as operational efficiency and long-term growth.
I believe that we can improve more on our flexibility by outsourcing on our production.
Our production should be outsourced from a contract manufacturer or a company that produces
goods under our brand name. Currently, our company is experiencing extreme paradigm shifts
which have prompted us to think about to outsource their manufacturing. The company can now
focus more on its resources and assets in ways that will lead to increased revenue and profit. On
normal basis, outsourcing reduces manufacturing costs, so if the company increases its revenue
through a better focus on resources and assets, it increases its profit margin as well.
Chan, S. S. (2005). IT Outsourcing in China: How China’s Five Emerging Drivers Are Changing
the Technology Landscape and IT Industry. The Outsourcing Institute, www.
outsourcing. com/(accessed 1 February 2009).
Cheng, L., Cantor, D. E., Grimm, C. M. & Dresner, M. E. (2014). Supply chain drivers of
organizational flexibility A study of U.S. Manufacturing industries. Journal of Supply
chain management, 50 (4), 62-75
Denscombe, M. (2012). Research Proposals: A Practical Guide. London: McGraw-Hill.
Lawson, B., Tyler, B. B. & Potter, A. (2014). Strategic Suppliers’ Technical Contributions to
New Product Advantage: Substitution and Configuration Options. Journal of Product
Innovation Management, 30, 1-17
Maku, J. K. & Iravo, M. A. (2013). Effects of outsourcing on organizational performance at
Delmonte Kenya Limited. International Journal of Social Sciences and Entrepreneurship,
1 (5), 104-117.

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