Outsourcing is a process by which an organization takes the services of an external party to perform some of its operations or functions. Outsourcing is also done by shipping firms all over the Globe (Outsource Freight, 2012). Ship owners generally outsource their operations and management functions to the external parties against for a particular period of time and against a specific sum of money (Lorange, 2009). Outsourcing of the shipping management enables the ship owners to focus on their core competencies and hand over the strategic decision making and policies to the outsourcing parties (AB Crewing, 2012).
Ship owners select the outsourcing parties by analyzing the different aspects of their operations and business environment (Outsource Freight, 2012). There is a full fledge selection criteria which helps the ship owners throughout the outsourcing party selection process (National Freight Management, 2012). The process starts with analyzing the business environment of the shipping firm and the outsourcing party so as to evaluate the different environmental forces that may impact the outsourcing process (Logistic Cluster, 2012). The business model, methodology, and track record of the outsourcing party must match the shipping firm's business strategies (Taylor, 2012).
This paper gives a comprehensive description of the key selection criteria which ship owners use while outsourcing their shipping management to external parties. The second part of the paper gives an explanation to why shipping management should be separated from the ship ownership. All the discussion has been made in the light of recent research studies and reliable internet sources from the relevant field.
Importance of Outsourcing
Outsourcing is any function, process, or task that can be performed by an organization itself but assigned to some external party against a particular sum of money (Hitt, Ireland, & Hoskisson, 2009). Outsourcing has become a common practice among business organizations all over the world (Lorange, 2009). Companies generally outsource some of their operations to some external parties working in regions or geographical boundaries other than their home country. However, outsourcing can also be performed by those external parties in the same country where the company operates (AB Crewing, 2012).
Outsourcing is sometimes referred to as off-shoring which includes contracting some functions, services, or jobs to outsourcing companies in other countries. Outsourcing brings a number of benefits for an organization; the biggest of all is the saving of time and expenses. Business organizations believe that outsourcing give them an opportunity to focus on their biggest strengths and core competencies and outsource the less important projects (Lorange, 2009).
Outsourcing decision in Shipping Management
Shipping firms have also engaged themselves in outsourcing practices since the evolution of Globalization and internationalization of businesses. They are more engaged in outsourcing their logistic services, supply chains, and materials to external parties. Moreover, vessel management is also outsourced by a large number of shipping firms around the Globe. Outsourcing is not an easy process; it requires a careful analysis of all the important factors of the business environment that may directly or indirectly affect the ship owner's business operations and profitability (Lin, Wen, & Ting, 2012).
The success of outsourcing in any type of business solely depends upon the assessment of all the key factors before taking the decision to outsource a particular type of service or job (Hitt, Ireland, & Hoskisson, 2009). Outsourcing may benefit the ship owners in a variety of ways. For example, it enables them to save their costs that are incurred on multiple shipping operations and focus on the most profitable and important operations (Lorange, 2009). It also enables them to keep their full attention towards bringing improvements in the core strengths, overcoming their weaknesses, and availing the potential opportunities by using the core strengths. Keeping in view these major benefits, ship owners can outsource their shipping operations or shipping management to outside parties so that they can only focus on specific aspects of their business (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011).
The Key Selection Criteria in Outsourcing Shipping Management
Outsourcing the shipping management involves a careful analysis of the internal environment of the shipping firm itself as well as the current market standing of the vendor or outsourcing firm. A shipping firm can take the outsourcing decision in three different ways:
The complete shipping business operations and the Management functions are outsourced to the third party
Only shipping business operations are outsourced but the Management remains with the owner of the business, i.e. The shipping firm
The Shipping Management is outsourced to the third party but all the business operations are performed by the shipping company itself.
Among all the above three outsourcing decisions, shipping management outsourcing is considered as the most crucial decision for a ship owner. Reason being, all the financial capital and shipping services are utilized and rendered under the supreme supervision of the third party which is totally independent of shareholding or any stake with that shipping firm. Therefore, a ship owner has to take this decision with full scrutiny and care. The shipping management outsourcing is a complex process with respect to phases of analysis and the time constraints a ship owner may face during this process.
The following sections explain the key selection criteria which ship owners should use while outsourcing the shipping management to some third party. The selection criteria is specifically explained for the shipping management process, however it can also be used while outsourcing some functions or operations of the shipping business.
1. Assess the Key Business Needs:
The shipping management outsourcing process starts with a deep analysis of the business environment of the shipping firm. It includes the analysis of both internal and external environments. The analysis of business environment is performed in order to analyze the current position of the shipping firm in its industry, the key business requirements of its day-to-day operations, and the shortcomings in any aspect of the firm's functions (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011). The internal environment consists of strengths and weaknesses of the shipping business operations while the external environment is composed of potential threats and available opportunities in the shipping industry or market. Both these analyses give deep insights into what has the shipping firm already achieved and what does it want to achieve in the short run and long run (Hitt, Ireland, & Hoskisson, 2009).
a. Analysis of the Financial Position of the Firm:
While outsourcing the shipping management of his firm, a ship owner should first look at the financial position of the firm by analyzing its financial statements. The shipping management is a crucial decision; therefore a ship owner has to keep a regular check and balance on the financial position of his firm. The analysis can be made by comparing and contrasting the assets ad liabilities of the firm and the long-term borrowings which it has made in the recent past. This analysis will help the ship owner in deciding that whether his firm is in a position to bear the financial burden of outsourcing costs or not.
b. Formation of a Project Management and Evaluation Team:
The analysis of business needs or requirements is not carried out by the shipping owner himself; rather he has to take the services of a team of managers who can analyze the different aspect of the business operations and present their views on the shipping management outsourcing decision. First of all, the ship owner has to formulate a team of managers from all the concerned departments and units of his shipping business. The team may consist of 7-10 members so that the scope of thinking and presenting ideas may be broadened (Lorange, 2009).
c. Objectives and Policies of the Outsourcing Project:
After formulating a team of managers, the ship owner has to communicate the main objectives and policies of the outsourcing project in a well-documented form to all the members of the team. It helps the team members in realizing the significance of the outsourcing project as well as the policies to be followed during the whole process (Zaeri, Sadeghi, Naderi, Kalanaki, Fasihy, Shorshani, & Poyan, 2011).
d. Function of the Project Management and Evaluation Team in Outsourcing Shipping Management:
The project management and evaluation team is basically formed to present a comprehensive but concise report to the ship owner regarding all the facts and figures that need to be considered while selecting the most potential outsourcing party for their its shipping management. The report presented by the team is generally called 'evaluation report' and consists of all the key selection criteria which the ship owner should use to select the best party for its project.
Critical Factors to be analyzed in the selection of an Outsourcing Party
In addition to the aforementioned components of the selection criteria, there are certain factors that need to be considered while outsourcing the management functions of a shipping business. These factors are comprehensively discussed below:
The Macro Environment of the Shipping Firm:
The Macro environment of a shipping firm is composed of the political, legal, socio-cultural,…