Page 13 - CIMA MCS Workbook May 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Outsourcing:

The Value Chain can be used by JORD to analyse the different value adding activities that are the
basis of its strategic capability, and assist us in understanding our internal strengths and
weaknesses. It is also one way of identifying which activities are best undertaken internally and
which are best provided by others ("out sourced").

Using value chain analysis in outsourcing decisions:
Value chain analysis involves critically assessing each activity to establish how much value it adds
to the overall product. By looking at activities in this way it is possible to identify activities which
could effectively be ‘ring‐fenced’ and those that could be considered for outsourcing.

Where activities are identified e.g. delivery services, which external providers could do as well, if
not better, then JORD may outsource that part of the process, gaining access to expert knowledge
and potentially save money at least in the short term.

There are certain key activities which we consider we could perform better in‐house either
because of the specialist knowledge we have or because they are confidential in nature. These are
generally the activities which we feel give us competitive advantage over our competitors. These
activities would continue to be done in‐house and for JORD would include e.g. sourcing new
suppliers and working with clients throughout each stage of the project, negotiating optimum
lead times.

In terms of the value chain it is always important to ensure that there are no weak links so if
outsourcing is going to be considered it must be ensured that the activity can be carried out to the
standard required (or better) so that it does not reduce but enhances the service.

For example, if it was decided to outsource aspects of technological development to specialist
providers (e.g. design consultants) this would result in a cost saving (at least in the short term) as
it would mean that we would no longer have to invest substantial sums and save on cost to
employ those who work here and currently manage the function. We could outsource this activity
as required to a specialist third party company. The outsourcing partner would be experts in this
field and would have access to the latest technologies.

Additional ongoing savings are therefore likely as would no longer have to incur the costs of
ensuring our team are trained in the latest techniques, buy the latest technology or have the cost
of investment in and maintenance of our in‐house function.

The problem with this is that we would have to ensure that the outsourcing partner was able to
deliver exactly what we required, to the standard specified within the given timescale. If this does
not happen then it could affect the overall success of JORD. Technology remains as the key driver
for success in prefabricated house design and manufacture and provides the client with the
means to meet their exact specification and on time. Falling behind is not an option resulting in
potentially a significant loss of revenue, additional costs and damage to profitability and brand.

We would also lose control over that part of the process and the loss of the in‐house expertise
could make it very difficult to re‐establish that activity within the company in the future. In the
longer term this could therefore significantly affect costs as we become reliant on the outsourcer.

Finance Manager

KAPLAN PUBLISHING 97