Although outsourcing becomes one of the options for original equipment manufacturers (OEMs) to reduce costs and increase returns, it has advantages and disadvantages. The following is a discussion on the IBM's decision on outsourcing computer assembly to some electronic manufacturing services (EMSs). It discusses the advantages and disadvantages of the decision, and recommends some operations strategies to both IBM and EMSs.
ADVANTAGES AND DISADVANTAGES.
The main advantages from outsourcing IBM's computer assembly are focusing on core competencies, reducing costs, and accessing world-class capabilities. However, IBM's decision is associated with the disadvantages of losing control and knowledge, and instability.
Advantage I: Focusing on Core Competencies
Focusing on core competencies is the most strategic objective that an OEM seeks from outsourcing. It means that the OEM's core competence ought to be retained in-house whilst complementary resources can be purchased outside (Brandes et al, 1997), thereby, enabling the OEM to maximise its returns on internal resources (Quinn and Hilmer, 1994).
Form the perspective of IBM, the decision is one more step in IBM's strategy of focusing on core competencies (Lohr, 2003; Spooner, 2002). The agreement is designed to streamline IBM's supply chain and allow it to focus on research, design, new technologies, and engineering (Zarley, 2003; Spooner, 2003).
Advantage II: Reducing and Controlling Operating Costs
A compelling advantage for outsourcing is that an EMS can supply a component more cost efficiently than an OEM can make it oneself (Brandes et al, 1997). By using this strategy, outsourcing reduces costs of product development (Nellorea and Soderquist, 2000). For example, a number of OEMs have taken advantage of the cost reduction that can be made by having software developed in India (Pepper, 1996). Form the perspective of IBM, the company is looking to reduce costs...