Outsourcing Challenges in Russia

The study focuses on the key factors in outsourcing from the viewpoint of manufacturing companies operating in Russia. The goal has been to give an overview of the different kinds of challenges companies might face in the case of outsourcing. Of particular interest are the possible risks which might originate from the subcontract relationship, as well as managing these risks. The empirical material for this qualitative interview study was collected from three large-scale manufacturing companies operating in food industry in Russia. Two of the interviewed companies were local Russian actors, and one was an international firm. According to the respondents, a big challenge is to find a suitable supplier in the Russian markets. If there are suppliers available, they may often not be capable of operating as outsourcing partners. The most common problems faced with suppliers are unstable quality and arbitrary pricing. Whether the suppliers are capable to offer activities which satisfy the company’s own and the end customers’ requirements, seems to be the biggest concern in the interviewed companies. This quality risk is managed by the strategy of multiple sourcing. Single sourcing is seen as an impossible option. The interviewed companies have no organised risk management with their external suppliers.

Drivers and Barriers of Collaboration in the Value Chain of Paperboard-Packed Consumer Goods

Value chain collaboration has been a prevailing topic for research, and there is a constantly growing interest in developing collaborative models for improved efficiency in logistics. One area of collaboration is demand information management, which enables improved visibility and decrease of inventories in the value chain. Outsourcing of non-core competencies has changed the nature of collaboration from intra-enterprise to cross-enterprise activity, and this together with increasing competition in the globalizing markets have created a need for methods and tools for collaborative work. The retailer part in the value chain of consumer packaged goods (CPG) has been studied relatively widely, proven models have been defined, and there exist several best practice collaboration cases. The information and communications technology has developed rapidly, offering efficient solutions and applications to exchange information between value chain partners. However, the majority of CPG industry still works with traditional business models and practices. This concerns especially companies operating in the upstream of the CPG value chain. Demand information for consumer packaged goods originates at retailers' counters, based on consumers' buying decisions. As this information does not get transferred along the value chain towards the upstream parties, each player needs to optimize their part, causing safety margins for inventories and speculation in purchasing decisions. The safety margins increase with each player, resulting in a phenomenon known as the bullwhip effect. The further the company is from the original demand information source, the more distorted the information is. This thesis concentrates on the upstream parts of the value chain of consumer packaged goods, and more precisely the packaging value chain. Packaging is becoming a part of the product with informative and interactive features, and therefore is not just a cost item needed to protect the product. The upstream part of the CPG value chain is distinctive, as the product changes after each involved party, and therefore the original demand information from the retailers cannot be utilized as such – even if it were transferred seamlessly. The objective of this thesis is to examine the main drivers for collaboration, and barriers causing the moderate adaptation level of collaborative models. Another objective is to define a collaborative demand information management model and test it in a pilot business situation in order to see if the barriers can be eliminated. The empirical part of this thesis contains three parts, all related to the research objective, but involving different target groups, viewpoints and research approaches. The study shows evidence that the main barriers for collaboration are very similar to the barriers in the lower part of the same value chain; lack of trust, lack of business case and lack of senior management commitment. Eliminating one of them – the lack of business case – is not enough to eliminate the two other barriers, as the operational model in this thesis shows. The uncertainty of the future, fear of losing an independent position in purchasing decision making and lack of commitment remain strong enough barriers to prevent the implementation of the proposed collaborative business model. The study proposes a new way of defining the value chain processes: it divides the contracting and planning process into two processes, one managing the commercial parts and the other managing the quantity and specification related issues. This model can reduce the resistance to collaboration, as the commercial part of the contracting process would remain the same as in the traditional model. The quantity/specification-related issues would be managed by the parties with the best capabilities and resources, as well as access to the original demand information. The parties in between would be involved in the planning process as well, as their impact for the next party upstream is significant. The study also highlights the future challenges for companies operating in the CPG value chain. The markets are becoming global, with toughening competition. Also, the technology development will most likely continue with a speed exceeding the adaptation capabilities of the industry. Value chains are also becoming increasingly dynamic, which means shorter and more agile business relationships, and at the same time the predictability of consumer demand is getting more difficult due to shorter product life cycles and trends. These changes will certainly have an effect on companies' operational models, but it is very difficult to estimate when and how the proven methods will gain wide enough adaptation to become standards.

Ostotoiminnan tehostaminen huonekalutehtaassa

Tämän työn tavoitteena on kehittää ja tehostaa suomalaisen PKT-sektorilla toimivan verhoiltuja huonekaluja valmistavan huonekalutehtaan ostotoimintaa ja tutkia sähköisen tiedonvälityksen mahdollisuuksia yrityksen alihankinnassa. Työssä käsitellään erilaisia keinoja hankintatoimen tehostamiseksi ja pyritään löytämään säästöjä hankintatoimen kustannuksiin keskittämällä oston resursseja alihankintayhteistyön kehittämiseen, etsimällä menetelmiä tiedonkulun nopeuttamiseksi yrityksen ja sen alihankkijoiden välillä, toimitusaikojen lyhentämiseksi ja toimitusvarmuuden parantamiseksi. Työssä käydään läpi verkostotalouden teoriaa, huonekaluteollisuuden verkostoja ja niiden rakentumista, yrityksen hankintatointa ja sen merkitystä yritystoiminnalle. Alihankintaa käsitellään tuotannon ulkoistamisen ja toimitusketjujen kautta. Työssä kartoitetaan myös oston sähköiset tieto- ja viestintäteknologiat ja niiden sovelluskohteet sekä niillä saavutettavat liiketoiminnalliset hyödyt.

Improving the Potentials of Logistics Processes: Identification and Solutions

The importance of logistics for companies is a well known and justified issue. Today, enterprises are developing their logistics processes in order to match their products and services to the requirements of the most important customers. Therefore there is a need for developing analysing tools for logistics and especially for analysing the significance of various customer service elements. The aim of this paper is to propose analytic tools for supporting strategic level logistics decision making by emphasizing service level elements on two levels: (1) to introduce and propose approaches to categorize the developing efforts of logistics and (2) to introduce and/or propose approaches for solving some customer service related strategic level logistics problems. This study consists of two parts. In the first part an overview of the work is presented, and the second part comprises eight research papers on the topic of the study. The overview includes an introduction, where strategic and tactical level logistics problems are discussed and the relation of logistics to marketing and customer service issues is presented. In the first part of the study the objectives, the structure, the research strategy and the contribution of the research are described, and the challenges for future research are discussed. In the second part the three first papers deal with the identification of objectives for logistics while the remaining five papaers concentrate on solving customer service related strategic level logistics problems.

Job losses, outsourcing and relocation: empirical evidence using microdata

Using microdata, we analyse the determinants of firm relocation and conventional outsourcing decisions as a way to reduce employment. The results for a sample of 32 countries show the relevance of factors not considered previously in the literature. Firms that are below average in quality or innovation have a higher propensity to externalise part of their production through outsourcing, while lower relative profitability and longer time to market for new products each imply a higher probability of relocation.

An analytic approach to distribution logistics strategic management

Logistics management is increasingly being recognised by many companies to be of critical concern. The logistics function includes directly or indirectly many of the new areas for achieving or maintaining competitive advantage that companies have been forced to develop due to increasing competitive pressures. The key to achieving a competitive advantage is to manage the logistics function strategically which involves determining the most cost effective method of providing the necessary customer service levels from the many combinations of operating procedures in the areas of transportation, warehousing, order processing and information systems, production, and inventory management. In this thesis, a comprehensive distribution logistics strategic management process is formed by integrating the periodic strategic planning process with a continuous strategic issues management process. Strategic planning is used for defining the basic objectives for a company and assuring co operation and synergy between the different functions of a company while strategic issues management is used on a continuous basis in order to deal with environmental and internal turbulence. The strategic planning subprocess consists of the following main phases: (1) situational analyses, (2) defining the vision and strategic goals for the logistics function, (3) determining objectives and strategies, (4) drawing up tactical action plans, and (5) evaluating the implementation of the plans and making the needed adjustments. The aim of the strategic issues management subprocess is to continuously scan the environment and the organisation for early identification of the issues having a significant impact on the logistics function using the following steps: (1) the identification of trends, (2) assessing the impact and urgency of the identified trends, (3) assigning priorities to the issues, and (4) planning responses to the, issues. The Analytic Hierarchy Process (AHP) is a systematic procedure for structuring any problem. AHP is based on the following three principles: decomposition, comparative judgements, and synthesis of priorities. AHP starts by decomposing a complex, multicriteria problem into a hierarchy where each level consists of a few manageable elements which are then decomposed into another set of elements. The second step is to use a measurement methodology to establish priorities among the elements within each level of the hierarchy. The third step in using AHP is to synthesise the priorities of the elements to establish the overall priorities for the decision alternatives. In this thesis, decision support systems are developed for different areas of distribution logistics strategic management by applying the Analytic Hierarchy Process. The areas covered are: (1) logistics strategic issues management, (2) planning of logistic structure, (3) warehouse site selection, (4) inventory forecasting, (5) defining logistic action and development plans, (6) choosing a distribution logistics strategy, (7) analysing and selecting transport service providers, (8) defining the logistic vision and strategic goals, (9) benchmarking logistic performance, and (10) logistic service management. The thesis demonstrates the potential of AHP as a systematic and analytic approach to distribution logistics strategic management.

Economical and operational analysis of outsourced warehouse function

The target of the thesis was to find out has the decision to outsource part of Filtronic LK warehouse function been profitable. Furthermore, another thesis target was to demonstrate current logistics processes between TPLP and company and find out the targets for developing these processes. The decision to outsource part of logistical funtions have been profitable during the first business year. Partnership includes always business risks. Risk increases high asset specific investments. In the other hand investment to partnership increases mutual trust and commitment between parties. By developing partnership risks and opportunitic behaviour can be decreased. The potential of managing material and data flows between logistic service provider and company observed. By analyzing inventory effiency were highlighted the need for decreasing the capital invested to inventories. The recommendations for managing outsourced logistical funtions were established such as improving partnership, process development, performance measurement and invoice checking.

Logistiikan kehittäminen tehdasalueella

Logistiikan kehittäminen on nykypäivänä tärkeä tekijä yrityksen kilpailukyvyn parantamiseksi. Huonon taloustilanteen takia kustannussäästöt sekä logistisen toimitusketjun tehostaminen ovat nyt entistä tärkeämmässä asemassa. Tämän diplomityön päätavoitteena on tehdasalueen logistiikan kehittämisen avulla saavuttaa säästöjä Sulzer Pumps Finland Oy:n Karhulassa sijaitsevien yksiköiden logistiikka-kustannuksissa. Logistiikkatoimintoja on vuosien saatossa vähitellen ulkoistettu, joten tutkimus keskittyy pääosin ulkoistettujen logistiikkapalvelujen kehittämiseen. Nykytilan selvittäminen suoritettiin ensin haastatteluiden ja seurannan avulla. Selvityksen tuloksena havaittiin palveluntoimittajien toiminnoissa esiintyvän päällekkäisyyksiä ja tehottomuutta, joista aiheutuu yritykselle ylimääräisiä kustannuksia. Logistiikan kehittämisehdotuksia käsitellään tässä tutkimuksessa tehokkuuden lisäämisen, ylimääräisten työvaiheiden vähentämisen sekä roolijaon selkeyttämisen näkökulmista. Työn keskeisenä tuloksena todettiin myös, että vaiheittaisen ulkoistamisen myötä on menetetty ulkoistetun logistiikkapalvelun hallinta. Hallinnan palauttamisen keinoina käsitellään raportoinnin ja tiedonkulun lisäämistä, sopimuksellisia ja veloitusperusteellisia näkökulmia sekä palvelu- ja kustannustason mittaamiseen soveltuvien mittareiden kehittämistä.

Performance Measurement of the Logistics Process

The objective of the thesis was to create a performance measurement system for the logistics process of a company. In addition, one goal was to make suggestions for improvements based on description and analysis of the process and current measures. The logistics process was described in detail, and the objectives for it were derived from the company strategy and goals. Suggestions for performance measurement system and process improvement were made based on current state analysis. As a result of the thesis, three new performance measures were decided to take into use. In addition, several improvements were suggested to the ERP system to make process smoother. Some of the improvements have already been added to the system and the rest will be added in the near future.

Supply chain costs of a small board lot: sheet cutting and logistics

Succeeding in small board lot (0-20 tons) deliveries, is not always prosperous and failures as well as extra costs compared to standard costs arise. Failure deliveries from converting plants to customer locations tie a lot of unwanted and unexpected costs. Extra costs are handled as quality costs and more precise, internal failure costs. These costs revolve from unsuccessful truck payloads, redundant warehousing or unfavorable routing as examples. Quality costs are becoming more and more important factor in company’s financial decision making. Actual, realized truck payload correlates with the extra costs occurring, so filling the truck payload all get-out well is a key to lower the extra costs. Case company in this study is Corporation A, business segment Boards. Boards have outsourced half of their converting in order to gain better customer service via flexibility, lead time reductions and logistics efficiency improvements. Examination period of the study is first two quarters of year 2008 and deliveries examined are from converters to the customer locations. In Corporation A’s case, the total loss in failure deliveries is hundreds of thousands of Euros during the examination period. So, the logistics goal of getting the right product to the right place and right time for the least cost, does not completely realize.

Managing regulatory risks when outsourcing network-related services in the electricity distribution sector

Deregulation of the electricity sector liberated the electricity sale and production for competitive forces while in the network business, electricity transmission and distribution, natural monopoly positions were recognised. Deregulation was accompanied by efficiencyoriented thinking on the whole electricity supply industry. For electricity distribution this meant a transition from a public service towards profit-driven business guided by economic regulation. Regulation is the primary means to enforce societal and other goals in the regulated monopoly sector. The design of economic regulation is concerned with two main attributes; end-customer price and quality of electricity distribution services. Regulation limits the costs of the regulated company but also defines the desired quality of monopoly services. The characteristics of the regulatory framework and the incentives it provides are therefore decisive for the electricity distribution sector. Regulation is not a static factor; changes in the regulatory practices cause discontinuity points, which in turn generate risks. A variety of social and environmental concerns together with technological advancements have emphasised the relevance of quality regulation, which is expected to lead to the large-scale replacement of overhead lines with underground cables. The electricity network construction activity is therefore currently witnessing revolutionary changes in its competitive landscape. In a business characterised by high statutory involvement and a high level of sunk costs, recognising and understanding the regulatory risks becomes a key success factor. As a response, electricity distribution companies have turned into outsourcing to attain efficiency and quality goals. This doctoral thesis addresses the impacts of regulatory risks on electricity network construction, which is a commonly outsourced activity in the electricity distribution network sector. The chosen research approach is characterised as an action analytical research on account of the fact that regulatory risks are greatly dependent on the individual nature of the regulatory regime applied in the electricity distribution sector. The main contribution of this doctoral thesis is to develop a concept for recognising and managing the business risks stemming from economic regulation. The degree of outsourcing in the sector is expected to increase in years to come. The results of the research provide new knowledge to manage the regulatory risks when outsourcing services.

Comparing service contract prices of outsourcing partner

The main objective of this Master’s thesis is to find out which one of the two pricing models is the most cost-effective. In this thesis there are two companies that have made an outsourcing contract, in which they have a possibility to choose between two different pricing models. The first model is so called FTE (Full Time Employee) -based. The total cost will be based on the amount of outsourced person-workyears. The second pricing model is the transaction-based, in which the price will be formed according to the amount of transactions. Changing the pricing model from FTE-based to the transaction-based will also incur other costs. It is very important that these other costs are also taken into consideration, so that it is possible to determine the total costs of the pricing models. These other costs are direct costs, indirect costs and performance related costs of outsourcing. Activity based-costing (ABC) was used in order to find out the trues indirect costs of the outsourced processes. Performance related costs are related to quality, so Pareto-analysis was used to analyse the costs. Based on all of that, a framework for service related cost analysis was developed. Quality costs were almost impossible to quantify, so quality had to be taken into consideration in a qualitative way. Furthermore, considering only the indirect and direct costs in a quantitative way and quality costs in a qualitative way, it was possible to find a conditional solution for the research question.

Quality management of outsourcing welded structure: case China

For any international companies who wish to enter the Chinese market, quality is base on the fundamental. The companies are coming to realize the importance of quality gradually, thus companies have been put the quality problems on the agenda. The competitiveness of companies comes from quality. Quality is the key to success, and it can decide that the companies can be accepted or eliminated by the market. Due to the obvious benefits, the demand of the method of how to achieve high quality of product keeps growing. During achieving the high quality process, the main troubles come from the impact between Eastern and Western culture. Chinese culture which is different with Western one have lasted as long as five thousand years. Such a culture deeply rooted in the hearts of Chinese people, and effected generation after generation of Chinese people's working style and ways of thinking. This thesis determines how to find a good fit point between Eastern and Western culture. Doing right thing by the right way. The nature of improving quality is improving management level in fact. "How to manage, who should be managed", the thesis explains the basic and best option to achieve those. It describes three-dimension-style management to monitoring the working process. This kind of management style can inspect production process from horizontal and vertical direction. In this management way, it defines effective evaluation system to every subcontractor, and makes the companies to achieve the ultimate goal - satisfy quality. Because of the importance of human factor, the thesis determines the range of training of the inspector and welder due to the current situation of China. The results show that in order to reach reliable training effective evaluation, not only the quality of the human but also the ultimate goal of product quality.