Outsourcing

Question 1

Outsourcing : definition

Answer 1

The delegation of one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard.

Question 2

Offshoring : definition

Answer 2

Involves outsourcing business activities or services to a third party overseas and/or moving business activities or services to another country as a direct or indirect employer. Offshoring is about moving your operations to another country.

Question 3

Difference between outsourcing opened offshoring :

Answer 3

Offshoring is about where the work is done

Outsourcing is about who does the work

Question 4

Why do firms outsource services :

Answer 4

Normally reduces costs. Can also be gains in quality and flexibility of the source or product offered. Other businesses that are specialised in tasks required and can do it better and cheaper.

Question 5

Quality : in-house vs outsource

Answer 5

Easier to ensure quality and trace problems opinion done in house
Vs
Supplier may be a specialist, with greater experience and better equipment

Question 6

Cost : in-house vs outsourcing

Answer 6

In-house departments don’t have to make a profit so it might be cheaper. May be too small to obtain economies of scale. Easier communication
Vs
Main reason to outsource. Supplier likely to achieve economies of scale. Motivated to keep cost low in order to make profit.

Question 7

Speed : in-house vs outsourcing

Answer 7

Easier to schedule work or production to fit in with business needs
Vs
Speed of response can be set as requirement of the outsourcing contract. Commercial pressure should encourage good performance.

Question 8

Flexibility : in-house vs outsourcing

Answer 8

Closest to the real needs of the business. Ability to respond may be limited by capacity
Vs
Suppliers likely to have greater capacity and flexibility than in-house. May have to balance conflicting demands from other customers

Question 9

Outsourcing : advantages

Answer 9

Swiftness and expertise : outsourced vendors have specific equipment and technical expertise, most of the time better than the ones at the outsourcing organisation.
Concentrating on core process rather than supporting ones.
Risk sharing : responsibility shifted to outsourced vendor
Reduced operational and recruitment costs

Question 10

Outsourcing : disadvantages

Answer 10

Risk of exposing confidential data
Synchronising the deliverables
Hidden costs
Lack of customer focus

Question 11

Why do firms outsource their business process :

Answer 11

Lack of expert labour in some portions of the business process
Availability of cheaper labour, whisky not compromising on the quality of output
Ability and feasibility to concentrate on other crucial business process.