Table ill Advantages and Disadvantages of Insourcing and Outsourcing Insourcing ADVANTAGES High degree of control Ability to oversee the entire process Economies of scale and/or scope Outsourcing ADVANTAGES High strategic flexibility Low investment risk Improved cash flow Access to state-of-the-art products and services DISADVANTAGES Reduced strategic flexibility Required high investment Potential suppliers may offer superior products and services DISADVANTAGES 423 Possibility of choosing a bad supplier Loss of control over the process and core technologies Communication/coordination challenges Increased risk of supply chain disruption Customer social responsibility (CSR) risks Table 7 looks at the debate from another angle: What factors will influence the decision to insource or outsource? As the table suggests, insourcing will generally be more favorable in situations where environmental uncertainty is low (thereby reducing the risk of investing in capacity), supplier markets are not well developed, and the product or service being considered is directly related to the buying firm's core competencies. In contrast, outsourcing becomes more attractive as competition in supplier markets increases, the product or service is not seen as strategically critical, and environmental uncertainty makes internal investment a risky prospect. Given this, it makes sense that a lot of high-tech companies, facing short product life cycles and uncertain market conditions, outsource more often than do firms in more stable industries. Table 7.8 Factors That Affect the Decision to Insource or Outsource FAVORS FAVORS INSOURCING OUTSOURCING Environmental uncertainty Low High Competition in the supplier market Low High Ability to monitor supplier's performance Low High Relationship of product/service to buying firm's High Low core competencies Swim Lane Process Maps Sometimes we are interested in understanding not only the steps in a process but who is involved and how these parties interact with one another. In the restaurant example, at least four people were involved in serving the customer—the host, the server, the cook, and the cashier. Swim lane process maps graphically arrange the process steps so that the user can see who is responsible for each step. This has two distinct benefits. First, swim lane maps allow the user to see where the process is handed off from one party to another, or where multiple parties are involved in carrying out a process step. Too often, a lack of coordination or communication at these interface points leads to problems. Second, by visualizing the key parties involved in a process, swim lane maps often forces organizations to address the question, "Who is ultimately responsible for the success of the process?" Figure 42 shows a swim lane process map for the San Diego DC order-filling process described in Example 41. In setting up a swim lane map, the first "lane" is usually reserved for the customer of the process. This customer can be an internal (i.e., within the company) or external customer. As Figure 4,1 shows, the order-filling process involves seven different parties, including the dealer who places the order. Furthermore, there are three parties—the sales office, internal mail, and picking clerk—that handle the order before it gets to the workers who actually do the picking. All these hand-offs and delays clearly add time and potential errors to the order-filling process. Figure 4.7 Swim Lane Process Map for Order-Filling Process Emile Order 1 Osier 1 I Order. ) , , we, orrv. Paper Order Created HOrder Set Mos I Internal Mail preened hui> f Picking Clerk Order Sies in ,erles lobos Clerk Order 4090. Yee Clerk Notifies Dreier & Pares Order So Plant Worker Worker Picks Order Inspector 1-0.- Os( scal Cyder .._ _____ — .--. __ I roinecod lemN Introduction Pagoda.com is an Internet service provider (ISP) that caters to individual consumers and small businesses who require a high level of service and are willing to pay a premium for it. Specifically, Pagoda.com offers state-of-the-art email applications and Web-building software, as well as plenty of storage space and the fastest access available. The marketing vice president, Jerry Hunter, puts it this way: "There are a lot of companies out there promising the cheapest Internet access. But what do you get for your money? Slow- or no-access and an endless stream of system crashes. And I won't even mention the lack of support if you have a technical question! For a few dollars more a month, we give our customers the environment they need to be productive. It's no surprise, then, that we have the highest customer satisfaction and retention rates in the industry." 461 The Online Help Desk One of Pagoda's services is its online help desk. The online help desk works as follows: Customers who are experiencing technical problems, or who simply have questions about their account, enter a one-on-one chat room, where they can interact directly with an expert. Problems are usually resolved within 10 minutes, and customers have listed it as one of the top three reasons they stick with Pagoda.com. Presently, Pagoda has enough capacity to handle up to 900,000 requests pm year, although management doesn't expect the number of requests to change much from the current level of 800,000 per year. A firm located in New Delhi India, has approached Pagoda about outsourcing the online help desk. The offer is attractive. The New Delhi firm's own personnel would handle the help desk function. These personnel all speak English fluently and have college degrees or appropriate technical backgrounds. And because they are located in India, labor costs would be a fraction of what they are in the United States. The savings would be passed on, in part, to Pagoda And since the help desk chat room exists on the Internet, Pagoda's customers should be unaware of the switch. Pagoda management has put together the following figures, outlining the yearly costs associated with the current system and the Indian proposal: 4. Postponement. Designing products to remain generic as long as possible during the production process, until it's known how the end user wants to customize them, saves costs. 5. Tax and duty reduction. These costs can be higher or lower based on the country of origin. 6. Take-back facilitation Design and packaging changes can reduce both manufacturing and environmental costs. HP estimates that DfSC techniques have saved it about 5200 million per year. 973 Questions 1. What is the relationship between design for manufacturability (DFM) and design for supply chain (DfSC)? 2. In the chapter, we discussed parts standardization and modular architecture. How do these two approaches support DfSC? 3. You hear someone say, "DfSC sounds fine in theory, but I think it will have two negative effects. First, it will slow down the product development process because now all the areas that make up supply chain management—procurement, manufacturing, and logistics—will need to be involved. Second, it gives too much power to the supply chain functions. After all, if supply chain managers think something is too difficult to ship or too expensive to make, they may say no." What do you think? Are these legitimate concerns? How should operations managers address them? Sources: Based on Heather E. Dorain, James Wisner, and Matthew Marks, "Design for Supply Chain," Supply and Demand Chain Executive, December 2, 2007, wuw.sdcexec.cora/articleil0289661/design-for-supply-chain?page=3; Brian Cargille and Chris Fry, "Design for Supply Chain: Spreading the Word across HP," Supply Chain Management Review, July–August 2006, www.strategicmgmtsolutions.com/DfSC-HP.PDF; "Hewlett Packard's Design for Supply Chain Program," SuppI5,. Chain Brain, www.supplychainbraincomicontent/industry-verticalshigh-techelectronics'single-article-pagefarticluhewlett-packards-design-for-suply-chain-program,, December 1, 2005. Case Study Design for Supply Chain Programl, Design for Supply Chain (DISC) is a systematic method of ensuring the best fit between the design of a product throughout its lifetime and its supply chain members' resources and capabilities. Even something as simple as flattening the tops of soda cans, as beverage makers did in the 1950s, can revolutionize product development, transform transportation and inventory processes, and generate huge cost savings and increased customer satisfaction. Hewlett-Packard (HP) has been in the forefront of adopting DISC principles, and IBM is another staunch proponent. IBM developed a short list of DISC principles that have helped it create products that are both competitive and supply-chain-efficient throughout their life cycles. Briefly stated, these principles are: 1. Integrate products parts and components as much as possible to reduce product assembly time. 2. Use industry-standard parts whenever possible to lower costs and simplify sourcing efforts. 3. Reduce lead times on critical components to avoid paying premium shipping fees on rush orders. 4. Design products for supply-chain friendliness throughout their life cycle, planning for and minimising the cost and disruption of design and technology changes as products mature. 5. Build supply chains based on the company's strategic plan, not around the idiosyncratic requirements of specific products. 6. Use common components and modular design, thereby reducing product variability. 7. Minimi7n inventory costs and reduce the risk of obsolescence by building to order from common components and subassemblies, rather than building to stock 8. Design products to give customers flexibility when ordering while keeping costs in line. 9. Use high quality parts and parts which can be quickly diagnosed to minimise warranty costs and improve after sales service. HP similarly uses DfSC to consider the impact of its design decisions over product lifetimes, from pre-launch through production to end of life cycle, in all its business units and regions. The DfSC strategy—essentially looking back in order to see ahead—helps improve HP's relationships with suppliers, manufacturers, logistics service firms, retailers, and consumers. To use DISC, which it adopted in the early 1990s, HP first asks four questions about its products: 1. What makes the product a good fit for a particular supply chain? 2. Which design decisions produce that result? For example, does the product have 972 unique parts? 3. When and why are design decisions being made, and who is coaling them? 4. How can the company deliver great products at higher profit margins? Since adopting DfSC and successfully propagating its use throughout the company, HP has been able to introduce more new products Lister and at lower cost. It has increased its revenues and kept customers happy. At the same time, the company has found ways to improve its inventory efficiency without offsetting risks onto its suppliers (which would damage its supply-chain relationships) or reducing the quality of product inputs (which would increase the cost of honoring product warranties as well as damaging customer relationships). HP's six DfSC techniques are: 1. Variety control. Having fewer SKUs allowed the company to reduce inventory 42% and increase product availability in its PC division. 2. Logistics enhancement. MAking an InkJet printer 45% smaller saved more than Sl per unit in logistics costs. 3. Commonality and reuse. While unique parts make products distinctive, they increase inventory costs and, often, time to market. Each for 200 words. Be original 1.Chapter 4 Swim Lane Process Map for a Medical Procedure Which process steps should be more standardized? Which process step's should be more artistic? Explain. 2.Chapter 7 Case Study:Pagoda.com Should Pagoda.com outsource its online help desk? Why or why not? Be sure to consider Table 7.7 and 7.8 when framing your answer. 3.Chapter 14 case study: Design for Supply Chain programs What is the relationship between design for manufacturing (DFM) and design for supply chain (DFSC)?