Cost minimization is a basic rule used in business that determines what portion of input, usually labor and capital (Bounthayong, 2019), will create an output at the lowest cost. This can be further explained by a reduction of cost and getting the most for each dollar spent (Bayer & Prince, 2017). Companies outsource for a variety of reasons, but it usually comes down to one thing: cost reduction. The auto industry uses outsourcing to achieve economies of scale accomplish tasks at a lower cost (Ciravegne, Romano, & Pilkington, 2013). Labor is one of the biggest costs in manufacturing. It not only includes wages, but also the benefits provided to employees. Parts can be supplied from other companies thus reducing labor costs. They can also use a design and sub-contracting companies to reduce overhead costs. Overhead costs include utilities and the maintenance of the equipment on the production line (Hamlett, 2017). These are just two ways auto companies can use outsourcing to minimize costs.
Baye, M. R., & Prince, J. T. (2017). Managerial economics and business strategy. New York, NY: McGraw-Hill Education.
Bounthavong, M. (2019, February 20). Cobb-Douglas production function and costs minimization problem. Retrieved June 30, 2020, from https://mbounthavong.com/blog/2019/2/19/cobb-douglas-production-function-and-total-costs (Links to an external site.)
Ciravegna, L., Romano, P., & Pilkington, A. (2013). Outsourcing practices in automotive supply networks: An exploratory study of full service vehicle suppliers. International Journal of Production Research, 51(8), 2478-2490. doi:10.1080/00207543.2012.746797
Hamlett, K. (2017, November 21). Reasons for Outsourcing in a Manufacturing Industry. Retrieved July 01, 2020, from https://smallbusiness.chron.com/reasons-outsourcing-manufacturing-industry-1292.html
Cost mitigation on automotive company’s input strategy can influence “outsourcing” by directing the type of outsourcing depending on the amount the company is willing to spend. Shukla (2010) explains that offshore outsourcing is much more expensive compared to onshore outsourcing. In offshore outsourcing, the automotive company will incur enormous costs due to hidden costs that come with the strategy. The strategy may seem cost-effective, but it ends up spending up to 50 more of the front –end amount.
Aside from the cost, the steps involved in the acquisition process are essential in determining the impact of these to the company’s brand. The environment is so appealing; hence may do some movement for the clients. The “Yes” agreement was only seen when young companies are not faced with different environments, such as cultural differences and language problems (Lee et al., 2018). Outsourcing in the automotive field can be expense factors are against the production of quality work.
Finally, the availability of complementary services such as Data Protection services has the impact of influencing whether an automotive company should outsource or not. The presence of a supportive external environment, such as the presence of government services, makes the outsourcing process efficient. The company will not have to strive much when looking for an external supply of labor and the market (Lee et al., 2018). Therefore, auto companies tend to utilize the external environment is determining situations where outsourcing is a wise idea or not. Cost is a considerable aspect in determining the strategy, and outsourcing the Auto companies usually undertake. The organization will only indulge in outsourcing deal has more benefits than costs in many cases. The nature of the outsourcing strategy also plays an instrumental role in shaping up the decision of auto companies to use the technique. In contrast, the availability of complementary services will positively encourage the institution to outsource.
Lee, M. J., Paik, S. Y., Cave, A. H., & Jung, J. S. (2018). Comprehensive competitiveness for auto companies from the USA, Germany, Japan, and Korea: Empirical analysis through a diamond model perspective. International Journal of Multinational Corporation Strategy, 2(2), 95–132.
Shukla, M. L.-R. (2010). The benefits and risks of outsourcing | Lexology. https://www.lexology.com/library/detail.aspx?g=e698d613-af77-4e34-b84e-940e14e94ce4