inhousing or outsourcing?

last mile delivery

if last mile delivery is a core competence in e-commerce, it can be inhoused

→ amazon wants to take care of the last mile delivery, offering shipping services for non amazon products

last mile fulfilment

last mile fulfilment center design and structuring can be outsourced

outsourcing definition

company divests itself of the resources (to fulfil a particular activity) to another company to focus more effectively on developing its own core competencies

• the decision, transfer and execution processes by which activities that have historically been or could in the future be carried out within the organisation, are instead sourced from an external supplier

• main forms:

• outsourcing for capacity (always partial/temporary outsourcing)

• outsourcing for knowledge

two forms of outsourcing

• outsourcing for capacity (always partial/temporary outsourcing)

• outsourcing for knowledge

Motives of outsourcing

1. cost reduction/economies of scale

2. reduced capital investment -> increased returns (ROI/RONA)

3. increased flexibility. Incidentally: in terms of capacity or Structurally: in terms of technology 

4. increased innovativeness

5. managing focus on core competencies

6. improved quality

risks of outsourcing

• increased dependence and vulnerability: the firm’s fate is increasingly in the hands of others

• loss of critical competences and skills: what is non-core today may be core tomorrow

• loss of internal synergy: less cross-fertilisation within the hollow corporation

• stickiness of knowledge: difficult transfer of tacit, embedded knowledge

what is more often the starting point of outsouricng? why?

non core activities and processes (so not directly related to fulfilment of goods or services for final customers)

core reason i focus on what i do better (core competency) and maybe delivery is not part of it

grocery e-commerce has more propsensity to?

in house last mile delivery

matrix to decide to inhouse or outsource based on what prinicples?

• level of competitiveness relative to suppliers → y axis

• strategic importance of competence (low = non-core) (high=core) → x axis

4 quadrants

quadrant 1: maintain invest

quadrant 2: outsource

quadrant 3: in house/invest

quadrant 4: collaborative/maintain control

quadrant 1: maintain invest

competencies are not strategic but provide important advantages

keep in-house as long as these advantages are integrally real

quadrant 2: outsource

competencies have no competitive advantage

quandrant 3: in house/invest

competencies are strategic and world-class

focus on investments in technology and people: maximize scale and stay on leading edge

quadrant 4: collaborative / maintain control

Competencies are strategic but insufficient to compete effectively

explore alternative such as partnership, joint ventures, licensing