Outsourcing in Operations Management

Modern organizations, in order to reduce operational costs and become more competitive, have designed and implemented several key strategies. One is that of outsourcing.
Through Outsourcing is contracted and delegated one or more processes, not business critical, a specialist provider, to achieve greater efficiency in carrying out the mission. Outsourcing produces multiple benefits, the most important being the following: reduced costs, reorganizing the staff structure, increase the level of working capital, improve the quality of products and services and reducing the level of business risk. It also eliminates some conflicts with the workers (with the Outsourcing the number of workers will be less), while decreasing some wasteful activities such as payroll processing.
But, as the outsourcing have advantages; it also has some drawbacks that are necessary to take into account before making a decision on its implementation. The main disadvantages are: dependence on third parties and possible loss of control, increased risk to the confidentiality level of the organization, and possible conflict with the outsourcing provider.

Therefore, it is necessary to take into account some important considerations for successful outsourcing agreement. The s most important are the following: develop appropriate agreements, taking into account the location of the service to be provided, should determine the level of technology use in the Outsourcing, check before you hire Outsourcing provider capacity to provide efficient service; include in the contract of outsourcing the relevant training to employees of the company, check the quality of the service Outsourcing, and establish the potential of vendor to support and network integration.
When management of an organization decides to use outsourcing services, you should consider what can be arranged and must not be hired by this system. In general, these activities can be contracted by Outsourcing: information technology, collections and marketing, general maintenance services of installations, consulting and training, and recruitment and settlement of payroll.
It is not recommended to hire these outsourcing activities: management of strategic planning, financial management, consulting services to senior management, control of suppliers, and quality management and the environment. These are all functions inherent to the company that cannot be delegated.
Anyway, hay otras ventajas importantes que deben ser consideradas en la contratación del Outsourcing, tales como las siguientes: disponer de más tiempo para enfocar la empresa en sus objetivos estratégicos; interactuar con empresas de clase mundial; disminuir los niveles de riesgo al poder compartirlos con terceros; mayor atención a los trabajadores de la empresa y fomento del trabajo en equipo; y requerimiento de menor espacio físico en la empresa.
Anyway, there are other important advantages that should be considered in the agreement of outsourcing, such as: more time to focus the company on its strategic objectives; interact with world class companies, reduce risk levels to be able to share with third, greater attention to company employees and promoting teamwork, and less physical space requirement in the company.

Statistical Process Quality Control

The issue of quality control of goods and services produced by organizations is one of the most important to ensure the minimum acceptable quality of them. For tangible goods, like cars, tools, medical equipment, raw materials, processed foods, computers and other electronic equipment, appliances, medicines, etc.., statistical techniques are used for controlling the processes involved in the production of such goods.
These statistical techniques involve mainly issues related to probabilities, such as Control Chart (which uses the Central Limit Theory), Process Capability, and Acceptance Sampling.
In fact, all of them are of great practical use, because one way or another they allow establishing the minimum acceptable levels for the organization, of the quality of the goods they supply to consumers. Generally speaking, companies seek to produce goods of the highest quality to ensure good productivity over competitors. And the statistics techniques are very efficient for achieving this goal.
For example, when to setting limits using monitoring samples, it is very easy to understand what samples are out of control (Which ones of those samples fall outside the averages of the lower and upper limits Control). Once you have detected the samples averages that are out of the limits, you can conclude that the process is becoming erratic and is not in control. Therefore, you have to make decisions to correct the situation. Otherwise, the company could reduce its productivity and competitiveness, which can generate lower sales. Thus, net income could be reduced as well.
It is good to note that the statistical techniques used for quality control are quite flexible in its application. This means that the computations of some elements are a little difficult to calculate, or they are not available, like standard deviation process. Then, we turn to the determination of the control limits by calculating ranges instead of calculating the standard deviations.
Anyway, it is emphasized, the quality control of tangible is easier than that of services. When it comes to controlling the quality of services provided by organizations such as the health agencies, legal services, telecommunications, transportation of passengers and cargo, hotel services and tourism, the human component plays a very important role. This means that the skills and behavior of people are determining factors in the time that is required to provide services to consumers or users. As an example, assume the hosting services of a hotel where the receptionist is not polite with a customer, due to personal problems. Well, the hotel service quality is seriously affected, as quite possibly the customer could feel this is the kind of attention of all personnel of the entity.
So, the question that appears is this: How can Statistical Tools help organizations to control easier process services quality?

The ABC Costing Method vs. Traditional Costing in Logistics Systems


Logistics systems in many organizations, generally speaking, used the traditional method of cost. This method considers the basic concepts of costs, such as total cost, variable cost, fixed cost, and the corresponding unit costs (average cost, unit variable cost and fixed cost per unit). It also takes into account the marginal costs and other cost items such as sunk costs, direct costs, indirect costs and mixed costs. This traditional costing, generally speaking, is governed by the norms and standards of cost accounting.

Despite the utility of this traditional system, some analysts have found that this method of costing has some inconsistencies that could lead to wrong decisions. The traditional costing determines the direct costs (labor and raw materials), as the quantities used and unit costs of each of these elements. Indirect costs are allocated primarily by the volume of units produced. The latter has been found inconvenient.

Therefore, it has been proposed for several years a new system called “Costing ABC – Activity Based Costing”. This is a management system, and it is based on the allocation of indirect costs to activities related to the units produced. Direct costs are calculated in the same way, since there is no difficulty for their calculation. The ABC Costing includes these elements: Resources needed, such as direct labor, machinery, equipment and energy, among others; the Activities such as production management, operation of machinery and the recruitment of the machinery; and Products (product 1, product 2, and so on).

Therefore, the ABC Costing broadly includes the following phases:
1. Analyze, systematically, all activities required to produce a product or service.
2. Decide how to group them in Activity Centers.
3. The third step in the design of an ABC costing system is the association of costs with activity centers.
4. The fourth step in the design of a costing system ABC is the selection of inductors cost, also called drivers, since they are generating costs.

An important advantage of ABC Costing is that let determine the unnecessary activities, which can be eliminated without affecting the structure of the enterprise, leading to a rationalization of costs. Another significant advantage is that the allocation of indirect costs is more suited to the different units produced, which facilitates cost analysis and decision making. The debate on this issue would be to discern and review the advantages and disadvantages of each of the two sets of costs, based on the issues presented herein and the knowledge and experience of the bloggers.