Introduction
Supply chain management is an important aspect of many contemporary organizations. It involves the flow of inputs and outputs from the supplier to the end user. Between the two stakeholders, there is the manufacturer, the wholesaler, and the retailer. Global sourcing, on the other hand, involves acquisition of supplies and materials from the global market and moving it across various boundaries. The process is aimed at exploiting global efficiencies in the delivery of goods and services. Many companies engage in global sourcing to support their supply chain network. Some international firms that manufacture products in large quantities source for some of the materials from the global market. The move is aimed at ensuring their final products are of high quality.
An example of a firm that practices global outsourcing is Subaru Car Manufacturer. Fuji Heavy Industries is the parent company of Subaru. It is based in Japan (Beamon 15). Toyota has 16.5% of shares in a partnership with this entity. Subaru has branches in different countries like the US, where it is known for manufacturing high quality sports cars. In 1992, the company started outsourcing the development of some software and hardware needed for its cars.
In this case study, a number of issues related to Subaru Company’s outsourcing element are discussed. They include an analysis of the company, inefficiencies and risk management, SWOT analysis of the outsourcing alternatives, as well as a discussion of selected options.
A Case Study of Sourcing and Supply Chain Management at Subaru Company
Subaru Company does not produce all the parts needed to assemble its cars. It only deals with the manufacture of the internal parts of the car. Such parts include the engine and the transmission systems. It also engages in the production of some of the body parts. The remaining components are outsourced to different companies that specialize in their production. A good example of such parts is the computerized system of the car. The systems improve handling and control of the vehicles (Jean-Jacques 133).
In 1992, the company entered into a contract with Unisys Government, Inc. The latter was supposed to supply Subaru Company with software and hardware devices that would help in proper communication. The car manufacturer required Unisys Company to establish a regional processing center at the existing Subaru Data Center. The aim was to enhance communication between the two companies (Beamon 16). Currently, over 30 employees work in the data processing plant outsourced by the car company. It is also noted that Subaru does not manufacture its tires. The company outsources the process to different companies like Goodyear. In 2014, Subaru voted Goodyear as the best producer of the component.
Subaru entered into an agreement with the tire manufacturing company after many years of production processes. Goodyear produces tires that are branded to suit the specifications of Subaru. Apart from the components, Subaru also outsources other parts of its products, such as car alarms, automatic vehicle locator, and horns. The components are outsourced to partners based in Taiwan (Jean-Jacques 137). Taiwan is well known for the production of these parts. Other car and motorcycle manufacturers in different parts of the world source for these products from the country.
As already indicated above, tires, tracking systems, and communication gadgets are good examples of components that Subaru Company sources from the global market. The outsourcing process is approved after a thorough research of the external markets. The analysis reveals what customers want to have in their cars (Christopher 56). As a result, Subaru outsources the production of these components based on a particular model of the car. Consequently, the car manufacturer produces a number of models. Each of them has unique features that set it apart from the others (Beamon 12).
A change in various external conditions may inform the launch of a new product. To this end, Subaru Company monitors its customers using different techniques. Assessment of the consumers is important as it provides information used to determine their attitudes towards products and the improvements they may want to be made on the existing models (Tracey and Vonderembse 13).
Subaru Company is not the only entity dealing with the production of cars on the global market. In light of this, it is noted that competition is stiff in the market. The organization must ensure that it beats its opponents and rivals to maintain and expand its market share (Rassameethes, Kurokawa and LeBlanc 290). External factors, such as increased demand for a particular car feature, may lead to the launch of a new product. The process may require outsourcing production of a number of components to new or existing companies in the global market. Procedures of supply chain management and the right channels of procurement should be adhered to. Before making any decision, management teams from different subsidiaries are consulted. The aim is to ascertain the right supplier to hire for the outsourcing program.
Over time, Subaru Company has changed its policies and regulations with regards to the procurement of different products from the global market. For expansion purposes that require new suppliers, the management takes time to assess potential stakeholders. Information regarding the quality of products from the suppliers, as well as their capacity, is used in making decisions (Tracey and Vonderembse 13). Such undertakings are important. They ensure that the does not get into any illegal contracts or agreements that may end up ruining its business.
Verifying the authenticity of the supplier is one of the procedures associated with supply chain management in relation to Subaru Company’s outsourcing processes. The quality of the products from the stakeholder, their prices, and reliability are other important considerations in supply chain management. Subaru cars are known for their durability. It is one of the reasons why they are a favorite of sports cars enthusiasts around the world. To maintain this niche and reputation, the company has to ensure that its raw materials and other inputs are of high quality (Tracey and Vonderembse 17).
The quality of the end product is affected by, among others, the manufacturing and storage procedures. Consequently, Subaru Company has to take care of this element. It achieves this through inventory management. It is one of the components of supply chain management. It is the reason why Subaru Company has put in place rules and regulations to guide how cars are manufactured, stored, and shipped to consumers. The aim is to make sure that the quality of the end product is not compromised (Klier and Rubenstein 34).
As a result of technological advancements, Subaru Company has introduced new models of cars. The new products are in line with the requirements of the new technology. It is important for the company to keep track of changes in the industry given that consumers demand for products that are highly advanced. The customers expect the products to address their diverse needs and aspirations (Christopher 56). Technology is one of the external factors that informed the establishment of a telecommunication center by Subaru Company. The establishment needs the communication needs of the firm at an affordable cost. A classic example is an outsourcing case that was witnessed in 1992. It is important to note how the company’s management teams from different parts of the world have been able to handle their supplies and productions to enhance the supplier-to-consumer flow.
Issues Arising from the Case Study
Every company has its weak points. The challenges can derail the activities of the company if they are not dealt with in the correct way. For example, inefficiencies could occur in the outsourcing program. Failure to ascertain the quality of services and goods offered by an outsourced company can lead to the downfall of a company. It is risky to outsource the production of components without monitoring the process and the inputs used to make the gadgets (Hassini, Surti and Searcy 77).
Subaru Company appears to totally trust the firms it outsources to. According to Sturgeon and Florida, this should not be the case (62). The car manufacturer stands to lose in case of any unforeseen eventualities. On its part, the outsourced company may not suffer as it may continue to service orders from other organizations. If the gadgets are faulty and the company fails to note this, it will be answerable to the consumers.
The products may not last for long. The market will not put the blame on the outsourced company. On the contrary, the discontentment will be directed towards Subaru Manufacturing Company. Such a situation may make the products of Subaru lose value in the market. An example is a situation that arose in 2014. The company was sued for a problem reported in some of its models. It was noted that 2011-2014 Subaru Forester and 2013 Subaru Legacy models had problems burning engine oil. According to court records, the fault was risky as it could lead to engine failure. Customers were not satisfied with the cars. They used a lot of money to repair and maintain the cars (Sturgeon and Richard 72). The problem made the company lose many of its customers.
The company can avert such problems in the future by taking precautions when entering into agreements with suppliers (Rassameethes et al. 300). A contract clause that holds the outsourced firm liable for losses incurred as a result of poor quality products can safeguard the interests of Subaru Company. The organization can also introduce measures to check the quality and standards of the outsourced goods and services.
The production capacity of Subaru Company is growing at a steady pace. The expansion is aimed at ensuring that the company meets the demands of its customers. To this end, the organization has operations in different parts of the world. The different establishments are meant to take services and products close to the market (Ramberg 415). However, some of these sites do not provide feedback to consumers at the required frequency and pace.
Chain management involves determining how the delivery of goods and services is handled at the consumer level. Some of the orders made via the internet take too long to be processed. In addition, shipment of products takes more time than expected (Christopher 23).
According a research conducted by the company, many customers felt that Subaru is letting them down by failing to respond to their demands on time. Customers are the backbone of every business organization. Problems dealing with these stakeholders may lead to losses in the market. As such, Subaru should strive to address this problem. The management should be more proactive when dealing with queries from consumers (Klier and Rubenstein 67). In addition, the company should ensure that its website is working properly. Consequently, the confidence of the consumers with regards to the products from the company will increase.
The finances of Subaru Company reflect another choke-point that needs to be addressed by the management. The organization makes profits every year from the sale of its cars (Ming-Ji and Yi-Pei 287). Some of the expenses incurred by the company include salaries for employees and maintenance costs. A large percentage of shipping costs involving individual orders is catered for by the customers. Poor management of funds may lead to the collapse of the company. Such potential risks should be monitored carefully. Proper accounting and auditing of returns should be carried out (Christopher 73). Supply chain management and outsourcing may be hindered if funds are not channeled to the right activities.
Subaru should also offer products to consumers at reasonable costs. There are cases where customers have complained of the exorbitant prices charged by the company for its cars. The parent company should also make the prices public. The aim is to ensure that all customers are aware of what they are supposed to pay for a given product. Putting the prices in the public domain may also curb the occurrence of cases where subsidiary companies hike figures for their own benefit. The car industry is characterized by stiff competition. Subaru should realize that price is one of the components in this rivalry matrix. Associated financial risks can be controlled through the adoption of proper management and accounting procedures.
A SWOT Analysis of the Various Options Available for Subaru Manufacturing Company
A critical analysis of Subaru Company reveals that it has different strengths and weaknesses. It can also exploit a number of opportunities in the global market to enhance its performance in the future. However, there are various external factors that threaten its market share. The threats have to be addressed to safeguard the future of the company (Sturgeon and Florida 65).
Strengths
Subaru is an international and widely recognized company. The feature is one of its strengths. In light of this, one of the options identified to deal with the challenges faced in supply chain management entails reaching out to its global consumers (Hassini et al. 72). The strength of this option is closely tied to the worldwide presence of the company. Subaru Company has also won a number of titles in the World Rally Championships. Its products are also widely popular given that they are equipped with the modern technology, which increases performance. Consequently, the features will help in the financial management of the firm to enhance its performance in the global market. With regards to auditing of suppliers, the move will increase the quality of the company’s products. Publicizing prices will increase transparency and consumer loyalty.
Weaknesses
One of the weaknesses associated with the option of auditing the performance of suppliers is the fact that these stakeholders may not be comfortable with the close supervision. Consequently, the relations between the two parties may be strained. In addition, the suppliers may increase the prices of their components to offset the demands of the company (Ming-Ji and Yi-Pei 290). Publicizing the prices of the cars may negatively affect some of the company’s distributing agents. The reason is that they may lack the freedom to regulate prices to cater for their expenses. Expenses vary from one country to the other. In relation to enhancement of customer relations, the move may increase the company’s operational costs. The reason is that additional employees and equipment may need to be acquired. Proper financial management may also increase costs as the company may be forced to outsource the services to auditing firms.
Opportunities
All the four options may help the firm to exploit the opportunities available in the global market. For example, auditing of suppliers, publication of prices, and enhancement of customer relations may increase of the company’s target market. The company will be able to reach to unexploited and large markets, such as Brazil. Marketing is one aspect of supply chain management. Marketing is an opportunity that can be exploited by the company to build its name on different platforms. In addition, it can help the company increase the size of its customer base. Proper management of financial accounts will go a long way in attaining this goal (Sturgeon and Florida 54).
Threats
Some of the options may increase the threats faced by the company. Some of these risks include increased competition from other car manufacturing companies like Honda, Toyota, and Porsche. For example, the rivals may use the publicized price regulations to offer products that are cheaper. In addition, increased focus on customer relations may impact negatively on the firm’s ability to produce high quality cars. The reason is that some of the feedback may be inconsistent with the goals and aspirations of the firm (Jean-Jacques 140).
A Discussion of the Decision Points
The options presented above were arrived at after a comprehensive analysis of the firm. To effectively handle its operations and chain supply, Subaru Company needs to be aware of its environment. Adopting the options will help the company to achieve this objective. The move will help Subaru work on its strengths and weaknesses (Tracey and Vonderembse 17).
However, the move to make public the prices of the products is not recommended. The reason is that the move may undermine the authority and bargaining power of distributors. As such, some of them may opt to work for the competitors (Jean-Jacques 140). In addition, as already indicated, rivals may use the information against the company. Investment on customer relations should also be regulated to ensure that it does not compromise the company’s profit margins.
Conclusion
Supply chain management in the car industry requires close monitoring on the part of the management. Various options can be adopted to achieve this goal. Each of the alternatives has its negative and positive impacts on the company. The management at Subaru Company should weigh each option to determine the best course of action. Decisions should be made after wide consultations with stakeholders. Subaru Company has effectively managed its supply chain and outsourcing systems. Its success in the past and in the future is tied to this element.
Works Cited
Beamon, Benit. “Sustainability and the Future of Supply Chain Management.” Operations and Supply Chain Management 1.1 (2008): 4-18. Print.
Christopher, Martin. Logistics and Supply Chain Management. 4th ed. 2011. New Jersey: FT Press. Print.
Hassini, Elkafi, Chirag Surti, and Cory Searcy. “A Literature Review and a Case Study of Sustainable Supply Chains with a Focus on Metrics.” International Journal of Production Economics 140.1 (2012): 69-82. Print.
Jean-Jacques, Chanaron. “Rationale and Future of Business-to-Business in the Automotive Industry.” International Journal of Automotive Technology and Management 2.2 (2002): 130-158. Print.
Klier, Thomas, and James Rubenstein. Who Really Made Your Car?: Restructuring and Geographic Change in the Auto Industry. New York: WE Upjohn Institute, 2008. Print.
Ming-Ji, James, and Huang Yi-Pei. “The Roles of Task-Environmental Factors in Outsourcing Strategy: A Combinative Research.” International Journal of Business and Systems Research 2.3 (2008): 285-304. Print.
Ramberg, Jan. ICC Guide to Incoterms 2010. 2011. Web.
Rassameethes, Bordin, Susumu Kurokawa, and Larry LeBlanc. “EDI Performance in the Automotive Supply Chain.” International Journal of Technology Management 20.3-4 (2000): 287-303.Print.
Sturgeon, Timothy, and Richard Florida. “Globalization, Deverticalization, and Employment in the Motor Vehicle Industry.” Locating Global Advantage: Industry Dynamics in the International Economy. Eds. Martin Kenney and Richard Florida. Stanford: Stanford University Press, 2004. 52-81. Print.
Tracey, Michael, and Mark Vonderembse. “Building Supply Chains: A Key to Enhancing Manufacturing Performance.” American Journal of Business 15.2 (2000): 11-20. Print.