Greg Neale
Student ID: 1837962
Develop an outsourcing strategy for a company of your choice. An outsourcing strategy can be defined as a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally (Williams, 2010). Whilst this strategy does yield advantages it also bears the risk of a loss of control. For the purpose of this assignment the company analysed will be Savile Row suite tailors. A suite tailoring company such as Savile Row is a perfect example of a company who could benefit from outsourcing through reducing the high cost of labour and high cost of domestic resources.
Literature by Charles Jones (2009) highlights various reasons why a firm such as Savile Row should outsource. These include, developing a global network base, lowering operational and labor costs, freeing up internal resources and enabling expansion. These can be applied to Savile Row in the following manor. Through outsourcing potentially abroad, contacts can be created for Savile Row enabling a greater access to supply chain and distribution channels. Lower cost yet similar quality labor could create a valued cost advantage and provide a platform for effective expansion. In terms of the processes that could be outsourced, according to Stanley Chapman (2005) the main cost for a tailoring company is the extensive efforts in house manufacturing consists of. This is estimated at being £700-‐£800 for jacket making and £220-‐£260 for Trouser making creating a maximum labor cost of £1260 per completed suit (Chapman, 2005). Therefore from a cost perspective it would be in Savile Row’s best interest to outsource the suit making process after measurements have been taken to a cheaper yet skilled country such as Vietnam. However if the firm which Savile Row outsources its production to is located abroad due to an incentive of cheap labour, a time lag would exist in receiving the goods. Therefore there is a trade off because although outsourcing would reduce costs, it would add time to the completion process.
Whilst there are clear benefits for outsourcing as expressed in the above literature there are risks. Williams (2010) details various risks as being a lack of consumer focus, synchronizing the deliverables and a loss of quality control (Williams, 2010). The first element applies to Savile Row as the process becomes less personalized, with an element of the ‘tailoring’ experience being taken away and completed elsewhere. The second risk also relates as the company looses control over delivery times and managing responsibility of delayed processes. The final risk mentioned within William’s literature of a loss of quality control could result in damaged reputation. Consumers may fear inferior quality before even consuming and therefore switch consumption to rivals. One solution to the risk of damaged reputation and the time lag created through outsourcing could be as follows. Savile row could operate a diversification strategy providing a lower cost tailoring service subsidiary, outsourcing its production for this subsidiary abroad. Consumers would be made aware of higher than average waiting times for completion, but in turn would be offered a more competitive price for ‘premium’ tailoring. This eliminates some of the disadvantages of outsourcing and helps to manage expectations providing a mutually beneficial exchange. To conclude, this proposal has assessed whether the tailoring company Savile Row should outsource part of its high cost production process abroad. Outsourcing has been clearly defined with its advantages and disadvantages critically considered using academic literature. Whilst there are risks such as a time lag, loss of control and reputation issues, the benefits to outsourcing in this sector have been clearly identified in the form of labor cost savings. To finalize this proposal suggests a compromise in that Savile row should diversify creating a subsidiary to avoid the risk of reputational loss and outsource production for this subsidiary. This would lower costs and create a more competitive tailoring product and target a more price sensitive market segment. 