Complete A Case Analysis Of A US Firm

Running head: ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

WHIRLPOOL CORPORATION

STUDENT NAME

INSTITUTION

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

Introduction

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

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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).

Analysis

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

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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

control.

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.

Synthesis

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.

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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

outsourcing.

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

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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.

Conclusion

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

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.

ANALYSIS ON OUTSOURCING MANUFACTURING SERVICES

References

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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