Supplier Development in Outsourcing

One of the most critical problems IBM faced in transforming from vertical integration to outsourcing is whether the suppliers could make qualified products. Fairly speaking, IBM’s worry is reasonable because at that time, back to 1980s and 1990s, IBM’s internal information was confidential and private and suppliers might have problems when producing. Aircraft manufacturing also experienced similar situation at early 21^st century, for instance, Allied Signal complained about the average level of supplier at the beginning of outsourcing. Actually, this kind of situation appears in every field especially in leading enterprises, who act strategic transformation first.

At this cross point, these companies have two options. On one hand, they can keep sticking on internal producing, ensuring the technique and quality while fall behind in schedule. On the other hand, they can help optimize supplier’s system, quality and process in order to make up the flaws in quality and technology and thus obtain cost advantage in the long run. Fortunately, many companies choose the latter method to set up the supplier development department, spend large sum of time and resource training suppliers and then cooperative together to coordinate problems.

When it comes to offshoring, these companies will highly possible be successful by taking advantage of relatively low labor cost. Although there are serious problems about those suppliers’ quality and management, the circumstance will be improved dramatically after companies’ help and in turn, the general producing level enhanced and they bring profits to those companies. For these companies, they are the first movers with cost advantage. As a result, when other competitors come into the field of outsourcing, the forerunners will simply enjoy the fruits of the developed suppliers while competitors are busying with training suppliers and signing subcontracts.

To constrain the outsourcing topic in China, there are two main problems remain to be discussed and solved. Firstly, many large-scale manufacturing enterprises are considering outsourcing as the producing cost is increasingly small. However, the suppliers are even not mature enough to be competent. Take the appliance industry as an example. These companies want outsourcing but failed to achieve mature suppliers who can in charge design, produce and manage independently. The outcome is reasonable as in this particular field the core technologies and skills are used by those leading companies, how can the suppliers exercise well and produce nicely? Secondly, imaging that competent suppliers are available after big companies’ training programs, what if they are seized by competitors and offer qualified products to them? This situation may happen especially in China currently, the issues of enterprise integrity and work ethic are highly mentioned and discussed.