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Question 540 - CSCP discussion

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The primary risk associated with outsourcing innovative components to suppliers is:

A.
decreased flexibility.
Answers
A.
decreased flexibility.
B.
higher carrying costs.
Answers
B.
higher carrying costs.
C.
employee turnover.
Answers
C.
employee turnover.
D.
loss of competitive knowledge.
Answers
D.
loss of competitive knowledge.
Suggested answer: D

Explanation:

Outsourcing innovative components can lead to several risks, but the primary risk is the loss of competitive knowledge:

Intellectual Property: When innovative components are outsourced, there is a risk that critical intellectual property and proprietary knowledge will be transferred to or accessed by suppliers.

Competitive Advantage: These components often embody the firm's core competencies and technological advantages. Losing control over these can diminish the company's competitive edge.

Dependency on Suppliers: Relying on external suppliers for innovative parts can reduce the firm's ability to rapidly adapt and innovate, leading to decreased flexibility and potential delays in response to market changes.

While decreased flexibility and higher carrying costs are concerns, they are secondary to the risk of losing competitive knowledge.

Pisano, Gary P., and Willy C. Shih. 'Restoring American Competitiveness.' Harvard Business Review.

Quinn, James Brian. 'Strategic Outsourcing: Leveraging Knowledge Capabilities.' Sloan Management Review.

asked 16/09/2024
Nikolaos Alexiou
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