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outsourcing

Concept of Outsourcing Business Strategy

Introduction:

Outsourcing is the process of assigning duties outside the business and getting them done from external sources. It is a cost-saving strategy when used well and provides a lot of benefits to the organization. It is sometimes easier and affordable to buy products and services from companies outside the organization than to produce internally. An example of this is one of the well-known outsourcing company “Dell” which buys computer components from other companies or outside of its own company to save its production costs. Also, the book-keeping jobs or all the account work is assigned to accountants outside the company rather than retaining personal accountants in the company itself.

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It is an allocation of specific business processes or tasks to an external service provider. Most of the organizations cannot have an internal resource for particular tasks or duties all the time which can be outsourced to external resources on the contract base. They cannot give a position to a particular resource permanently as some duties can be completed in short durations and do not need a permanent position.

However, in order to outsource or assign any task or duty of your company to the outside third party vendor, it is essential to know the advantages and disadvantages of the outsourcing and the results that it accompanies. Although outsourcing gives various kinds of benefits to the company, if not handled carefully, it sometimes causes problems for the organization.

Various Reasons For Outsourcing In Manufacturing Industry:

When we hear of the term “outsourcing” concerning manufacturing a company, most of the people usually think of moving production out of the home country to the other nations or offshore. There are a tremendous amount of benefits with outsourcing but the major one is the cost-reduction that comes in the mind of organization handlers.

Labor Costs:

To analyze any operations of the company and deciding to outsource any specific duties requires the cost of labor. Labor is one of the biggest cost of any manufacturing company. Employees on a company payroll will have all the employee facilities, competitive wages and also some kind of employee health benefits. Outsourcing does not always mean moving production to another company or another location. They use resources from outside companies on a lower wage than from its company payroll permanent employee but will acquire the same benefit of work from them. With this, there is a flexibility of increasing or decreasing staffing needs and benefits provided to them as per the requirement.

Overhead Costs:

Many companies outsource their manufacturing to reduce overhead costs related to operating a manufacturing facility. These overhead costs include utilities, such as water, electric, fuel, and other maintenance needed to run production equipment. Other overhead costs include indirect labor such as equipment technicians, quality assurance personnel, material handlers, and receiving & shipping personnel.

Time Utilization:

Through outsourcing, there is a utilization of time because work or duties are given outside the company to the experts of the required fields. The process of interviewing any new resource for the company and all the procedures which are required for the enrollment of the employee takes a long time for the creation of the new team. Using Outsourcing, time consumption is reduced to a minimum.

We can easily find companies that offer services at lower costs. However, due to various ethical concerns, some of the organizations prefer the costlier route as the price variation could be deceptive as the difference is only in the initial costs. Compromise with customer’s personal and confidential information is one of the major concerns that companies tend to face especially in the offshore outsourcing contracts.

All in all, it has been predicted that the future of Outsourcing is seen to be bright and positive. Besides that, there are also clear signs indicating the broadening confidence in the outsourcing industry throughout all the organizations. This would ultimately lead to more companies adopting this business strategy procedures over an increasingly wide range of business processes and functions.

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