Internal and external sourcing strategies essay

Challenges such as product design and quality, cost of goods sold, and cycle time contribute to an organizations financial health. To assist organizations better control these factors, supply chain management techniques, when implemented improve costs, delivery cycle times, and quality. Supply chain management achieves these goals through the use of strategic sourcing.

Internal and external sourcing strategies essay

Global sourcing Global sourcing is a phenomenon tentatively studied by scholars. During these studies, global sourcing is a widely used term in the area of purchasing. In other words, the definitions of global sourcing differ widely.

Global sourcing also involves setting up production operations in different countries to serve various markets, or buying and assembling components, parts or finished products worldwide Murray et al. In the literature of Monczka et al.

This makes us question whether the motives to global sourcing are rather externally than internally focused. To research this question behind global sourcing, we extend this chapter by reviewing existing literature about the history, trends and motives of global sourcing. Global business transactions have been reported to be growing three times stronger compared to domestic economies during the last decades and this trend continues Rodrigues et al.

Internal and external sourcing strategies essay

Companies engaged increasingly more in international sourcing activities and have the expectation to reap substantial competitive advantages from it Horn et al. The past years, we identified three waves of global sourcing.

The first wave, starting aroundfocused primarily on the global sourcing of manufacturing activities. As a consequence, supply chains became more global and complex, with manufacturing firms sourcing from suppliers in many countries for raw materials, intermediate and final products. IT commoditized and firms started outsourcing these activities as they did not perceive new in-house information systems to be beneficial to their core business activities.

Global sourcing particularly comprised of labor-intensive and standardized programming activities. These could be conveniently sourced from locations such as India. A third wave, identified as the offshoring movement, commenced not too long ago.

We are currently living in the era where firms outsource their IT activities alone. The outsourcing of business processes has been extended beyond IT services to a range of other activities such as finance, accounting, human resource management, sales and after-sales services.

Similar to the period portrayed as the second wave, also during this period firms seized the benefits of the upcoming trend. Also, the round-the-clock availability of sources by having different time zones were beneficial.

Business-process providing firms became the real deal. However, this third wave is receiving much publicity.

While the market for business-process providers saturates, academics are concerned that foreign suppliers may be moving up the knowledge chain more rapidly than expected by sourcing firms.

Internal and external sourcing strategies essay

The recent waves of global sourcing are summarized in table 1. According to Mol et al. First, there is a core competency strategy which leads to lower vertical integration followed by increased outsourcing Bettis et al.

It can be observed that the depth of value added has decreased, e. Secondly, global sourcing is driven by the idea of the exploitation of lower factor costs by allocating activities in the value chain to regions with a lower comparative price level Hartmann et al. In other words, these factor costs e.

Figure 1 is an exemplary representation of a case in which capital is relatively cheap in country II, whereas labor is comparably cheap in country I. In most cases, firms engaging in global sourcing will find themselves in a second type country, whereas country I more represents a typical sourcing region.

Following the logic, capital intensive process steps are undertaken in country II and labor intensive work is more likely to be done in country I Kogut, Therefore, the potential comparative advantage is assumed to influence the decision where to source and where to market, particularly when the respective cost factor is intensively used Horn et al.

Essay: Global sourcing - Essay UK Free Essay Database

Value-added chain of comparative advantages Kogut,p. The trend of global sourcing has been set by the core competence strategy and comparative advantage. The scope of global sourcing however, has evolved over time.

Whether to procure components or products from abroad was determined strictly on price and thus strongly influenced by the fluctuating exchange rate. The appreciation of the dollar encouraged companies to intensify offshore sourcing, while the depreciation of the dollar prompted domestic sourcing.

The access to valuable technologies and highly innovative products has been shown as one of the motives to source from outside country borders. This particular occurrence has also been referred to as global technology sourcing, meaning the identification of foreign suppliers offering superior products or technologies that are otherwise not available in the domestic markets.

Also, many regions with comparably low labor costs have been identified by fast economic growth and large markets in absolute terms.Essay from the year in the subject Business economics - Supply, Production, Logistics, grade: , University of Phoenix, course: ISCOM Strategic Supply Chain Management, language: English, abstract: Internal/External Sourcing Strategies Paper Organizations face challenges to improve their financial standing.

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Running Head: Internal & External Sourcing Strategies Internal & External Sourcing Strategies Paper University of Phoenix March 7, The decision whether and organization chooses to source internally or outsource depends on the overall need of the organization.

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