Which of the following statement regarding outsourcing is TRUE?

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BlackTom AI · Accepted Answer

Question restatement: Which of the following statement regarding outsourcing is TRUE?

Option 1: 'If the break-even point in a typical make-buy scenario is 10,000 units and 19,000 units are required by the firm, then the firm should outsource the products.' This mixes a standard make-versus-buy logic with a break-even analysis. Outsourcing decisions typically compare total cost of producing in-house versus purchasing from an external supplier, considering fixed and variable costs, capacity, and strategic factors. A break-even point alone does not automatically dictate outsourcing when demand is 19,000 units; the decision depends on total cost at that level and strategic considerations. Therefore this statement is misleading and not universally true.

Option 2: 'As companies outsource more and more parts, it becomes easier to achieve cost savings internally.' The premise suggests internal cost savings improve simply by outsourcing more parts, which is counterintuitive. Cost savings from outsourcing come from external efficiencies, supplier competition, and process improvements, not from internal cost reductions due to outsourcing a larger portion. In fact, excessive outsourcing can erode internal capabilities and may reduce internal cost-saving leverage. Thus this claim is incorrect.

Option 3: 'If a company is effectively focusing on its core competencies, its level of outsourcing is likely to decrease.' This contradicts the common strategic view that concentrating on core competencies typically involves outsourcing noncore activities to external specialists so that internal focus remains on core areas. If anything, effective focus on core competencies usually coincides with increased outsourcing of noncore activities, not a decrease. Hence this statement is false.

Option 4: 'Generally, firms outsource noncore activities while focusing on core competencies.' This aligns with widely taught outsourcing strategy: preserve and strengthen what a firm does best (its core competencies) and delegate noncore activities to specialized external providers to achieve cost savings, access to expertise, and flexibility. This statement accurately reflects the typical strategic rationale for outsourcing, making it the true option.

Summary perspective: The first three options contain common misconceptions about the determinants and effects of outsourcing, whereas the fourth option concisely captures the standard rationale for outsourcing decisions. This makes Option 4 the accurate choice in the context of outsourcing strategy.

OSCM 363-001 Concept Check6: Global Sourcing Decisions

Which of the following statement regarding outsourcing is TRUE?

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OSCM 363-001 Concept Check6: Global Sourcing Decisions

Which of the following statement regarding outsourcing is TRUE?

View Explanation

Log in for full answers

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The idea behind _______ is “focus on what you do best and let others do the rest”.

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Part 1What is transferring a firm's activities that have traditionally been internal to external suppliers?Part 2 A. keiretsu network B. make-or-buy C. outsourcing D. vertical integration