Advantages and Disadvantages of Rm offshore Outsourcing Projects

Advantages and Disadvantages of

RM Offshore Outsourcing Projects

CIS 564

Introduction

Advantages and Disadvantages of RM Offshore Outsourcing Projects

Outsourcing has been an important alternative for the development of products and services. The shortage of skilled technical labor in mid ’90 made it acceptable for corporations to rely on outsourcers. In 2000, Riordan Manufacturing (RM) opened a plant in China and moved all of its operations from Michigan to China. Riordan’s mission for the future is to focus on “achieving and maintaining reasonable profitability to assure that the financial and human capital is available for sustained growth”. RM, the industry leader in the field of plastic injection, employs 550 people. Outsourcing is primarily to save money while taking advantage of skills and technology not found inside of Riordan Manufacturing. Offshore outsourcing offers cost savings through reduction of salary and other related costs. “Cost saving is not the only benefit of a properly managed outsourcing relationship. Many companies seek additional benefits such as reduced time-to-market, improved product development process, improved schedule management and predictability, and increased flexibility of staffing models” (DeMassi, 2004). Outsourcing helps to reduce time to market when developmental supply expertise and skills are not otherwise available inside the organization. A good outsource relationship is a partnership based on understanding and contractually agreement. This ensures all products and services will be processed to the companies agreement. Increased flexibility in staffing deals with employees changing jobs or taking new responsibilities. “The advantage for offshore firms is created by the different costs for hiring well-educated and capable software engineers. The annual salary for a US-based applications software programmer is $75,750. In contrast, a developer with equivalent skills and experience based in India earns $11,400 per year” (Kain, 2005).

Communication is one of the factors at Riordan Manufacturing that needs to be addressed. When planning for outsourcing, take into account the need for effective local and remote managed communication to either U.S. or offshore-outsourced workers. Cost can be associated with terminating or losing in-house personnel as a result of the movement of projects to outsource vendors. During the startup phase of outsourcing, it takes time to save money and develop efficient processes. In order to develop an offshore relationship, it may take the team time to iron out cultural differences. An important risk is the backlash inside the company from personnel that feel the outsource effort is impacting their future and that their jobs are in jeopardy. Another problem may arise in employees refusal to transfer knowledge to the outsource team. Riordan Manufacturing strives to maintain satisfied and happy employees. In order to achieve a satisfied work force, RM needs to know the advantages and disadvantages of offshore outsource. Team B will also represent information about another company that shares the similar case to Riordan Manufacturing.

Centralized Databases

RM needs to contract with an offshore firm to create a centralized data base system that will track RM’s historical and current sales. A business to business system should also be created so that RM can order materials from its vendors. Below are advantages and disadvantages to outsourcing this project offshore.

Advantages

1. A centralized sales database system will combine and report each plant’s historical and current sales.

2. Information will be easily located and accessible to all of the plants.

3. RM can allocate time and resources to other parts of the business.

4. A business to business database will allow RM to order materials from its vendors.

5. The ordering process will be easier and quicker.

6. RM will increase productivity and operational efficiency.

7. RM would not need to hire, train or lay off current employees

Disadvantages

1. RM will have to provide the offshore firm with important company information

2. RM will need to monitor the firm for accuracy of information reported