In-House or Outsource

How Do Third Parties Increase the Supply Chain Surplus  

Third parties increase the supply chain surplus if they either increase value for the customer or decrease the supply chain cost relative to a firm performing the task in-house. Third parties can increase the supply chain surplus effectively if they are able to aggregate supply chain assets or flows to a higher level than a firm itself can. Here, we discuss various mechanisms that third parties can use to grow the surplus. 

Factors Influencing Growth of Surplus by a Third Party 

Growth in Surplus by Third Party as a Function of Scale, Uncertainty, and Specificity 

Firm scale Low High growth in surplus Low to medium growth in surplus 

In addition to the qualitative factors, a company can also use a cost criterion to decide whether to make or buy a certain part. This process is illustrated in Example 6.1. 

A manufacturing company is currently producing a part required in its final product internally. It uses about 3000 parts annually. The setup of a production run costs 600 and the part costs 2. The company s inventory-carrying cost is 20% per year. The company is considering an option to purchase this part from a local supplier since the fixed cost of ordering will only be 25. FFowever, the unit cost of each part will increase from 2 to 2.50. The problem is to determine whether the company should buy the parts or produce them internally. 

The optimal number of parts per production run P can be calculated using the EOQ formula given in Chapter 3  

based on minimum cost, the company should continue to make the parts internally. 

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Whether to develop in-house or outsource the project, the development team must have strong technical skills combined with strong business knowledge and must interact with users on a regular basis (Chapters 1 and 5). Try to embed a user in the development team if possible. The idea of handing off a requirement document to an outsourcer and expecting a product in 6 months or 1 year that meets user expectations and gets delivered to the users on time simply does not work. 

Again regardless of in-house or outsource development, document a list of features and prioritize them. Break the project down into short, timeboxed iterations, each focusing on one or two of these features (Chapter 5). Do not let the iteration deadline slip. Reduce the scope of the iteration if necessary. Implement features with high business values and high business and technical risks in early iterations. Make sure each iteration delivers a production quality partial system to solicit feedback and let the system grow incrementally. The project plan should be adjusted based on the feedback. It is OK if the initial project plan is not accurate. However, it should become more and more accurate as more iterations are completed. Test and integrate early and frequently. 

Zalud, B. (2006). Officers In-house or outsource Security, 43(11), 58-60. Accessed June 9,... 

The planning and procurement cycle covers short- and longer-term requirements. The demand of the product and its components (biU of materials) are compared with the inventory and capacity and the replenishment requiranents are planned. Planners will decide what to buy and what to make. This make or buy decision process also applies to a service organization leading to either in-house or outsourced services. 

IN-HOUSE OR OUTSOURCE The most significant sourcing decision for a firm is whether to perform a task in-house or outsource it to a third party. Within a task such as transportation, managers must decide whether to outsource all of it, outsource only the responsive component, or... 

The objective of the first phase of network design is to define a firm s broad supply chain design. This includes determining the stages in the supply chain and whether each supply chain function will be performed in-house or outsourced (see Chapter 4). 

In the relatively short time that companies have been focusing on managing supply chains, the world has changed dramatically. Over the last three decades or so since the phrase supply chain management was first coined we have witnessed a major trend to globalised supply chains, with activities that were once performed in-house now outsourced, accompanied by a dramatic increase in volatility in the business environment creating ever higher levels of uncertainty in both demand and supply,... 

However, for most smaller industrial and commercial or institutional facilities around the world today, the concept of outsourcing just about every aspect of the requirement for utilities is not on the agenda, but it undoubtedly will come when the time is right. In fact, the added cost of full services is often prohibitive in those countries where in-house labor rates are low thus, much of the boiler plant preventative... 

Other factors include available resources in terms of money and manpower to develop the system in-house, outsource, or purchase from e-clinical proprietary vendors, reliability, flexibility, and security. Some coordinating centers have chosen OSS/FS over proprietary vendors based on the criteria of cost, reliability, flexibility, and security [38]. The rationale is that although both have service comparability, proprietary software licensing costs, both for initial purchases and annual licensing, are significant. 

Implementation or Production of the Technology How will the technology be implemented or manufactured Will an in-house capability be developed or will manufacture be outsourced ... 

Buyers may use outsourcing as much as possible. This is a modem trend (or perhaps it merely seems so) and often finds favor. Also, buyers may require additional labor services or may relinquish much of the day-to-day water treatment work normally accepted as an in-house function and pass over to water treatment service company contractors. This may include functions such as the disposal of empty chemical drums, chemical tank fillup, or equipment hookups. Such service-oriented contracts are fine, but the buyers cannot totally abrogate all control and have to take responsibility, in the final analysis, for policing their own contracts. 

Preclinical studies may either be conducted in house (within a sponsor s own laboratories) or outsourced to a contract laboratory or grantee. When a... 

The validation life-cycle approach applies to both in-house developed and purchased computer systems. Supplier responsibilities are indicated later in this chapter. Suppliers include internal development or support groups, external vendors, and outsource organizations. 

Apart possibly from investigators fees, in-house costs represent the greatest single item in a clinical trials budget. Table 53.3 lists many of the subdivisions of costing that could be regarded as internal, the vast majority of which could be outsourced to CROs or similar organizations. 

This is essentially the traditional view of outsourcing. A sponsor maintains in-house staff levels capable of performing the projected workload. Individual studies or selected activities within a study are contracted to a CRO only when in-house... 

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