Fmcg Industry And Outsourcing Information Technology Essay

Fmcg Industry And Outsourcing Information Technology EssayFMCG attention, conversely to a fault c each(prenominal)ed as Consumer case easilys manufacturing. riotous Moving Consumer Goods be those fragile consumables which are usually consumed by the consumers at a regular interval. Prime activities of FMCG industry belong to selling, marketing, financing, purchasing, etc just the industry also betrothed in operations, supply chain, production and general management.FMCG industry cans a wide range of daily consumable products and consequently the amount of specie circulated against FMCG products is also very high. Competition among FMCG companies is also mounting and as a result of this, investment in FMCG industry is also greater than ever, particularly in India, where FMCG industry is regarded as the fourth largest vault of heaven with total market size of US$13.1 billion which is estimated to grow 60% by 2010. FMCG industry is considered as the largest subdivision in r efreshing Zealand which accounts for 5% of the country Gross Domestic Product.FMCG product categories include Packaged food and dairy products, Hair and body care products, glasswork and paper products, pharmaceuticals, consumer electronics, plastic goods, printing and stationery, household products, photography, drinks etc. and some of the examples of FMCG products are soap, detergent, shampoos, coffee, tea, dry cells, greeting cards, gifts, tobacco and cigarettes, watches etc. Well known FMCG companies are Nestl, Reckitt Benckiser, Unilever, Procter Gamble, LOreal, Coca-Cola, Carlsberg, Kleenex, world(a) Mills, Pepsi and Mars etc.The purpose of this topic is to investigate the relationship between the factors that affect the outsourcing decisions in FMCG industry of Pakistan. There are higher trends seen in the market for outsourcing in m whatsoever FMCG companies but still it is reflecting as there are a number of factors which inhibit the FMCG companies to make outsourcing de cisions.Outsourcing occurs as a result of confidant acquaintance between subcontractors and managing departments. Outsourcers motive to decrease the bell of production and the price of management by distributing work to avoid early(a) costs such as wages and compensation. However, outsourcing helps society by decreasing unemployment, making the economy grow and decreasing social problems.Outsourcing is also a way to boost the economy and it helps producing industries to delay in the market. However, it is not a guarantee that the producing industries will survive. It is just one of the devices that FMCGs should use in management, but it depends on managerial efficiency in the industries. If FMCGs want to survive in the age of globalization, they down to adopt management techniques suitable for each situation in order to survive in the current industrial climate.Nowadays, macroeconomics and microeconomics attain been changing very rapidly, in every region. This situation is f orcing all countries in the world to adapt to competition resulting from globalization, including modifying g everywherenment policies, international relations, free dish out area agreements, etc. Changes are also occurring in industrial management, especially organic lawal management, production management and technology, delivery, and marketing management, in response to both local anaesthetic and international competition.In the competitive environment of manufacturing concerns and evolving technological era, to enhance efficiency and productivity, cost remains a challenge to overall manufacturing industry to compete with rivals in providing the best total lower cost to end customers and to secure the market share in order to add value to the shareholders. To invest heavily in capital investment such as machineries, buildings and land to expand put in documentationing the production operation is a burden to most companies if the hap of investment is not valuably.FMCGs that outsource are in quest of, to recognize benefits or address one or more of the issues like Cost savings, counseling on Core, Cost restructuring, Improve quality, Know leadge, Contracting out, Operational expertise, Access to talent, Capacity management, Catalyst for shift, Enhance capacity for innovation, Reduce time to market, Co modification, Risk management, surmisal Capital, Tax Benefit, Scal index and Creating leisure time etc.FMCG Industry and OutsourcingCompanies that were struggling to increase the capacity to support the ramp up motivation at times were folie when there was a drastic downturn of demand cut. As a result, the sudden downturn would affect the resources and investment that were put into supporting the end customers demand. group of human resources and machineries that consumed production space and being idled would increase the overhead and fixed cost, thus affecting the companies badly in their financial statements. In addition, training and increase t o up skill versed resource skills set in footing of running the operation effectively, bringing up technical content expert, specialist ability to perform query and information to add value, effective management and maintaining the operation would require significant investment in human resources.Thus, most of the companies started to explore opportunities to stifle cost and to improve cabbage margin in order to maintain competitive edge in the market. One of the identified opportunities was to outsource non-nitty-gritty blood functions to remote service providers at a lower operating cost.Outsourcing decisions are those strategic decisions that change the operating strategy of an organization both in manufacturing and services. The most all-important(a) step in any outsourcing decision is to clearly define the scope of the activities that are being considered for outsourcing versus previously in sourced.Outsourcing becomes a basic strategy of the FMCG industry and is essen tial for FMCG firms to stay competitive in the global environment. From firms perspective, outsourcing offers several advantages, such as reducing or stabilizing overhead costs, gaining cost advantage over the competition, concentrating on core activities and organisational specializations, providing flexibility in response to changing market conditions, and reducing investment in high technology found manufacturing organizations. finished 2004 onward vexation growth strategy changes and business growth was restored as the first priority for most worldwide businesses, making cost reduction the indorsement or third priority. Ensuring business growth as intumesce as business surgical procedure speed, agility and cost reduction requires a unique amalgamate of versed and outer capabilities, skills, services and moldes. Only a business-goaded sourcing strategy supported by good-enough sourcing execution capabilities will guarantee successful business outcomes as well as improv ed mathematical process and competitiveness.Lack of an outsourcing strategy or relevant skills and processes to manage outsourcing relationships is the most important reason for the failure of service and manufacturing industry. Global competition, change magnitude regulation and inspection, the development of specific standards and the industrialization of services will raise the competitive bar for the FMCGs services and business processes, making it compulsory for the FMCGs to work on their core business in source let the others do their gambol for you. By competing on core competencies and outsourcing non-core areas, FMCG companies achieve consistently higher performance over the globe in all fields especially manufacturing and supply chains through consistent focusing and tracking their strike performance indicators.For any of the participation to make decision for in source or outsource, its the company strategic decision which will make the basis for the whole in source or outsource process. For making any decision, decision maker will consider the following perspective in their mind or they must have good answers for these questions.Determine what your company needs to or should do best strategy driven long-term positioningDetermine how best to do things profit driven short to intermediate term competitivenessINSOURCING/ OUTSOURCING STRATEGIC DECISION KEY STEPS IN SERVICE BASE INDUSTRYAn executive level cross-functional decision-making process identifies core competencies and areas for internal investment.The level of internal control required by the companies and prospective direction for operational insource/ outsource decisions are identified and analyzed establish on strategic value and relative competitiveness of the company in the market.Document complete strategic decision making process and the implementation process for the strategic decision being made as it provides closed-loop assessment for continuous improvement of the decision in the long run.Align the implementation strategies, processes and Key performance indicators with criteria and assumptions used in strategy formulation or development and in sourcing /outsourcing decision process.STANDARDIZED OUTSOURCING PROCESS FLOW IN FMCG INDUSTRYStageKey ActivitiesRough TimelineBU RoleCOE RoleOpportunity ConsiderationAlign on business need gain mgmt commitment to evaluate optionsIdentify options to consider (e.g., internal cost savings, consolidation, off-shoring, outsourcing)Perform Options Analysis / Size of Prize (not detailed financial analysis)If potential for outsourcing, contact outsourcing COE for supportNAPRPRPRPRCCEvaluation Team Kick-OffEstablish small team to perform preliminary evaluation of outsourcing (Project Mgr/Business Mgr, Deal Mgr, Purchases Mgr, FA Mgr, HR Mgr, External Rel.)1-2 wksPRCInitiate Evaluation ProjectAgree on top-line preferred deal parameters with OS COE (e.g., general scope boundaries, sell all vs. partial assets) sustain Keep Price Analysis using the CBA model (COE website)Develop preliminary project success criteriaDevelop preliminary project process, timing and critical runningConsider advisory needs (e.g. external consultants, legal support)Consider need for employee communication pre-market evaluation activityConfirm business management alignment support to evaluate the option1-4 wksSRSRSRSRCSRPRSRSRSRSRPRSRCMarket Evaluation/DiscoveryAnalyze market and identify potential suppliers (e.g., market position, capabilities, potential for savings monetization)Develop supplier materials (cold call subject matter operation review presentation)Meet with suppliers (generally worth meeting w/up to 10 or so if available)Evaluate findings of visits and determine potential for outsourcingRFI may go out as part of typical assessment activity4-8 wksPRPRCSRCCPRSR ratiocination to Pursue OutsourcingRefine project objectives, scope, etc. (w/knowledge of market evaluation)Prepare recommendation to pursue outsourcin gGain management approval per Decision Authority earlier to RFPDetermine the small group of suppliers to be engaged in an RFP (3-4 ideally)Execute CDAs with these suppliersExpand project team (RFP leader, Legal, Administrative support, etc)Develop communication plan evanesce to employees if not yet been doneBase Case Financials2-3 wksPRPRPRSRPRPRCCCSRPRCCRFP DevelopmentDraft and gain approval to RFPDevelop RFP timeline (release date, supplier engagements, site visits, submittal date)Release RFP and instructions to suppliers4-6 wksPRCPRTPOPRTPORFP litigate ExecutionPerform step-by-step RFP completion process w/suppliers (e.g., RFP review session, electronic QA cycle, preliminary solution review)Receive review bids, and bring about formal solution walk-thru processGet revised bids and perform evaluation (operational, HR, financial)4-8 wksSRSRSRSRSRSRDowns elect ProcessDevelop recommendation to down select to 1 or 2 suppliers (keep 2 suppliers ideally to maintain competitive envi ronment)Get management agreement1-2 wksPRPRCCDue DiligenceConduct due diligence as required (us on suppliers suppliers on us)1-2 wksPRTPOFinal BidsProvides suppliers with gulp contractRequest Best Final Offers (if appropriate)1-2 wksCCPRPRNegotiations and Contract SigningNegotiate detailed price and contract terms (w/2 suppliers as long as possible)Align on terminal down selectGet management approvalFinalize internal and external communication plans (with External Relations)Sign contract and execute related communications4-6 wksCPRPRPRPRPRCTPOCCTransition and ClosingPut full transition team in placeExecute required transition steps (including road shows, job offers, etc)Develop and execute companion agreements in other countriesExecute closingPrepare deal files4-12 wksPRPRSRPRSRPRPR Primarily Responsible Total Time Required*SR Shared Responsibility 5 10 months (ex Transition)C Contributor 6 12 months (w/Transition)TPO Technical Process Oversight* will vary based on project sco peProblem StatementThe rapidly changing global industrial environment, cost of working capital, research and innovation, releasing key internal resources, concentrating on Core business functions, obtaining better organizational form has significant impact on outsourcing decision making in FMCG industry of Pakistan.HypothesisH1 Outsourcing activities are increasing day by day in FMCG Industry of Pakistan.H2 FMCG industries are Outsourcing in all areas of their business not only manufacturing operation.H3 FMCG industries are Outsourcing to reduce Operating cost.H4 FMCG Industries are outsourcing to increase concentration on their core business.H5 FMCG Industries are outsourcing to Improve Quality of Services.H6 FMCG Industries are outsourcing to Acquire Specialized expertise and knowledgeH7 FMCG industries are focusing on Selective Outsourcing.H8 FMCG industries have midterm Outsourcing contracts.H9 FMCG industries make Outsourcing contracts with good reputable companies.H10 FMCG i ndustries make Outsourcing contracts with companies that bugger off at lower cost.H11 FMCG industries make Outsourcing contracts with companies that have advance technology and management experience.H12 Losing control of the certain business is the major concern in FMCG industries to make Outsourcing contracts.H13 increase dependence with outsourcers is the major concern in FMCG industries to make Outsourcing contracts.H14 Difficult to bring in source after conflicts is the major concern in FMCG industries to make Outsourcing contracts.H15 revealing of commercial secrets is the major concern in FMCG industries to make Outsourcing contracts.H16 Conflict of Interest with outsourcing partner is the major concern in FMCG industries to make Outsourcing contracts.Outline of the StudyThe research structure based on five chapters as followsIntroduction about the Outsourcing and FMCG industry.The literature review had provided theoretical background of the research and cites author had pre viously researched on the topic of factors affecting outsourcing decisionThe research methods chapter included method of data collection, statistical technique and hypothesis development.The results chapter had included findings and interpretation of the results.The conclusion, discussions, implications and recommendation section provided the final logical analysis.DefinitionsOutsourcingOutsourcing is an agreement in which any task operation, job or process that could be performed by employees within an organization, but is instead contracted to a third party for a significant period of time-one Company provides services for another company that could also be or usually have been provided in-house.FMCGsIt is an acronym forFast Moving Consumer Goods.It is defined as fast selling, low unit valueconsumer productsnormally in universaldemand. It includes categories like foods, softdrinks, toiletries, cosmetics and other non-durables.CHAPTER 2 literary productions REVIEWMost of the compa nies that were struggling to increase the capacity to support the ramp up demand at times were upset when there was a drastic downturn of demand cut. As a result, the sudden downturn would affect the resources and investment that were put into supporting the end customers demand. Team of human resources and machineries that consumed production space and being idled would increase the overhead and fixed cost, thus affecting the companies badly in their financial statements. In addition, training and development to up skill internal resource skills set in terms of running the operation effectively, bringing up technical content expert, specialist ability to perform research and development to add value, effective management and maintaining the operation would require significant investment in human resources (David Mackey and Kaye Thorne, 2003).Thus, most of the companies started to explore opportunities to reduce cost and to improve profit margin in order to maintain competitive edge in the market. One of the identified opportunities was to outsource non-core business functions to external service providers at a lower operating cost. Outsourcing decisions are those strategic decisions that change the operations strategy of an organization both in manufacturing and services. The most important step in any outsourcing decision is to clearly define the scope of the operations that are being considered for outsourcing (Cook, Mary, F. and Gildner, Scoot B. 2008).Human resource professionals throughout the world are being asked to do more or less(prenominal), to enhance productivity while controlling costs and to find out parvenue ways to increase profitability. (Uddin, Gazi, M. 2005).Outsourcing is not a impertinent notion. For decades, jobs have been migrated from other part of the countries leanly American and European countries as well as other overseas countries to global service providers primarily India, China, capital of Singapore and Malaysia due to lower operating cost. According to Cynthia A. Kroll (2004), a regional economist from University of California Berkeley, the recent wave of outsourcing affected a different mix of jobs, at different wage levels. It was not confined only to a small set of industries but cut across all industrial sectors in new geographic area rapidly (Cynthia A. Kroll, 2004). William P. DiMartini (2005), Senior Vice President at SunGard Availability Services said businesses in all industry segments found that particular(a) internal resources would make outsourcing an attractive, cost-effective and prudent option that would allow them to focus on their core competencies (AccountingWEB.com, 2005).Demand for outsourcing is a result of demand for organizational products by the target audience. On the basis of organizational estimate of total turnover, practicing managers can attempt to establish the nature and type of outsourcing required to that esteemed goal (Uddin, Gazi M. 2005).Outsourcing advantages to name a few include lower operating cost, improve competitiveness, low in capital investment, shift resources to focus on core functions, generate demand for new growth and market segment, access to world class capability, sharing risks and make capital funds available for core business investment. Bangladesh is a least(prenominal) developed country, basically an agrarian economy, having around 24 million acres of cultivated land, employing about 14.5 million cultivators. Manufacturing industries have grown around Dhaka and Chittagong based on agriculture input of jute, cotton, chemical and gas based industries.Industrial production growth has averaged more than 6% over the last 5 years. The export sector has been the engine of industrial growth, with ready-made garments leading the way, having grown at an average of 30% over the last 5 years. Primary products constitute less than 10 percent of the countrys exports the bulk of exports are manufactured/processed products, ready-made garments and knit wears in particular. (www.euroitx.com)There are many manufacturing concerns in Bangladesh that are flavor into outsourcing opportunity to reduce cost and to overcome the internal limitations and achieve lower cost of operation. The country is now moving towards industry based economy from the agro-based one. Hence, this examine was an attempt to access determinants influencing the outsourcing decision and to research the manufacturing concern in Bangladesh on how well the factors would influence the manufacturing industry in Bangladesh to outsource certain function of their business areas to external service providers. The study also aimed at finding out the influencing factors that influenced the companies in outsourcing decision and helped the companies to overcome the internal limitation barriers.In the early 1980s, outsourcing typically referred to the situation while organizations expanded their purchases of manufactured physical inputs, like car companies that purchased window cranks and seat fabrics from outside the firm rather than making them inside. Nowadays, outsourcing took on a different meaning. Presently it refers to a specific segment of the growing international trade. This segment consists of arms-length, or what Bhagvati (1984) called long-distance purchase of services abroad, principally, but not necessarily, via electronic mediums such as the telephone, fax and the Internet. Outsourcing can happen both though transactions by firms, like phone call centers staffed in Bangalore to sen7e customers in New York and X-rays transmitted digitally from Boston to be read in Bombay, or with direct consumption purchases by individuals, like when someone hires an offshore firm to provide plans for redesigning or redecorating a living room (Bhagwati, J. et al. 2004)In an era of rapid technological change and short product life cycles, companies were trying to reduce cost and maintain quality at the same time which implied that compa nies would need to specialize in what they did best and de-emphasize management attention from business processes that did not forthwith impact the business. Outsourcing was a means to partner with service providers so they could handle specific business processes better, quick and at a lower operating cost (V. Krishna Polineni, 2001). It was defined as the transferring one or more internal functions of an organization to an external service providers. According to the analyst Dean Davison, the outsourcing was growing about 20 percent to 25 percent per annum (Dean Davison, 2006). Outsourcing has become an alternative, which all major corporations must consider in order to remain competitive. It helped to increase efficiency, improve service quality, accountability, values, decreased headcounts and cash infusion and gain access to world class capability and sharing risk (The Outsourcing Institute, 2006).One of the primary advantages of outsourcing arises quickly from the reductio n of overheads. This might perish rise to an immediate, and possibly one-off, advantage in terms of the avoidance of future or recurrent capital outlay, and the savings in office space and equipment furnish if these could be released during the outsourcing decision. There was clearly a staff cost reduction possible here, and this could be the predominant element in directly-attributable, ongoing cost savings. The spin-off from this might benefit the business support services department where the outsourcing was partial, and could be especially useful where the capital cost was high and recurrent, particularly if there was incredulity about the future costs of maintaining effective and competitive business support. It was an investment risk transfer, in other words. Where outsourcing is total, the benefit was accrued directly by the core business it translated to a capital injection to the customers business. This was one of the major driving reasons of the outsourcing of IT pro vision in the early 1990s generally agreed as having been led in 1989 by Kodak, which outsourced all of its IT operations to IBM (Jonathan Reuvid and John Hinks, 2001). This could also confer a great deal of flexibility on the company. For a centralized organization which was providing a range of its support services from its own personnel and offices, the move to outsourcing could allow a downsize of the property commitments. Consider the impact on the organizational infrastructure requirements of a change to outsourcing IT provision, payroll and credit processing, pensions, catering, recruitment, training, Human Resource Management (HRM), cleaning, security, lettings, software development, estates and building management. It could also confer direct scope for downsizing or increased options for organizational re-structuring through property and HRM flexibility.The transfer of a non-core service provision to a variable cost would allow economies of scale to be passed on from the supplier, and also would mean that incremental changes in the process capacity of the customer (upwards or downwards) could be covered at proportional rather than quantum cost changes. Where scope to vary the scale of the contracted supply was agreed, this has allowed the business organization to make maximum use of its marginal capital for core process change rather than non-core process support change. This could allow decreased time to market for new products or processes, and also increased scope for changes. Outsourcing solutions can provide an splendid chance to get the company service provision out of a rut and, if properly managed, to stimulate new solutions to problems from the mixing of different approaches.A detectable feature of the global economy is the enhancing international products. Robert Feenstra (1998) describes the remarkable international specialization in the manufacturing products. For example, the raw materials of manufacturing products like Barbie dolls ( plastic and hair) are obtained from Taiwan and Japan. Assembly used to be done in those countries as well as to lower cost locations like Philippines, Indonesia, Malaysia, and China. The growth in international specialization can also be observed in aggregate statistics. William Zeile and Gorden Hanson et al (2003) document the importance of trade within multinational firms. David Hummels et al. (2003) show that trade in intermediate inputs has grown faster than trade in finished products. While the globalization of production may yield important productivity benefits, there is a widespread view that it has also adversely affected low skilled workers. There are frequent media reports on how low-skilled labors in the first world countries are hurt when manufacturing jobs are move in the US and in many other countries have picked up on this theme to push for greater restrictions on trade with developing countries. Yet, condescension its prominence in the public debate, there is litt le systematic evidence of the extent to which low-skilled workers are harmed by outsourcing to poor countries (Hsieh, Chang T. and Woo, Keong T., 2005).Outsourcing has existed in the USA for over 30 years particularly the business process outsourcing (BPO). The Bank of America, Best Buy, Delta Airlines, Goodyear, IBM, the Marriott, Motorola, PepsiCo, Procter Gamble, and Sun Microsystems are all outsourcing HR functions. US federal and state governments also drop down billions each year doing so also. HR functions are not just being outsourced, they are being sent offshore. The US companies have off-shored their manufacturing and their RD facilities in their semiconductors, computing, chemicals and pharmaceuticals to the UK, Germany, France, Ireland and other developed countries (www.shrm.org).In view of developing countries, outsourcing takes place more recently to India and China. In 2003, 1.5 million service jobs were outsourced to the developing world and the number was project ed to pot to 4.1 million by year 2008 (Elmillian Chew Saint Fey, 2005). According to the Offshore Location Attractiveness Index published by AT Kearny (2004), Malaysia, an emerging southeast East Asian nation, was the third most desirable location for offshore outsourcing in the world, after India and china. In Malaysia, the demand for outsourcing was not only from global multi-national companies but also from local companies. The demand for outsourcing was driven by the fact that companies could access a more reliable infrastructure that could ensure smooth core business operations at lower costs and with greater flexibility. Outsourcing also encouraged the pooling of resources for a more efficient use of resources to reap the benefits that could be derived from economies of scale. Bangladesh has potential in outsourcing in its competitive business environment with a relatively low cost structure as well as support from the government and non-government organizations. In view of outsourcing demand, Bangladesh could be very well take advantage of this fact by attracting quality outsourcing operators to the country. The availability of quality resources especially in the private sector to support the outsourcing demand, this could be made available to support off-shore and local outsourcers. HR outsourcing organizations in Bangladesh are in stage of booming up and most of the organizations have realized that they should play more attention to networking activities. Uddin, Gazi M. (2005) describes the challenges and prospects of effective HR outsourcing for managerial activities in the corporate world of Bangladesh. The study reveals that networking activities play a strong fibre in HR outsourcing and duration of outsourcing is temporary. The study mainly focused on HR outsourcing, not on the factors influencing outsourcing decisions.Literature review shows that several comprehensive studies have been conducted in the world regarding outsourcing specifically HR outsourcing, general time management, managerial jobs, and managerial behavior and so on. But no significant study in the light of this research has been found. It is not claimed by the researche