Task 6 Flashcards
What is outsourcing?
That a company hires another company/third party to do part of the manufacturing (or another business function) for them (either at home or abroad)
What is off-shoring?
When a company decides to do part of its manufacturing in another country
What is domestic outsourcing?
Outsourcing to a company in your own country.
What is near-shore outsourcing?
Outsourcing to companies in neighboring countries.
What is business process outsourcing?
A form of outsourcing that involves the contracting of the operations and responsibilities of a specific business function (or processes) to a third-party service provider. It is primarily used to refer to the outsourcing of services.
Example:
- Hiring specialized companies to do your ACF activities, hire a call center
- Or outsource your human resource department
Which external motives for outsourcing are there?
- Provides access to diverse technologies
Outsourcing provides access to industry leading process development expertise and manufacturing technologies. When outsourcing to a specialist vendor, a company can benefit from the use of latest know how’s and best practices.
- Improve speed and time-to-market
By effective utilization of available resources and improvement in overall efficiency and productivity, a company can easily reduce cycle time and improve the time-to-market for any product. It also assists in increasing this speed of delivery, making the company more competitive in the market.
- Global best practices
Outsourcing service providers usually operate across the globe and handle a number of functions for different companies. This gives them an opportunity to learn and gain expertise in the best business practices used by the top companies in the world, their knowledge and expertise can be leveraged by any company to adopt these global best practices.
- Greater flexibility and competitiveness
With the greater degree of specialization and increased focus on core activities, a company is able to manage all its requirements in a much more efficient way. It makes the company more agile and flexible in responding to market changes and demands of competitive pressures.
Which internal motives of outsourcing are there?
- Control Costs
Running every business operations effectively will result in spending the huge amount of money. Outsourcing certain activities could offer the same value at lower costs due to economies of scale.
- Improve operational efficiency
Outsourcing can improve an organization’s efficiency by transferring operations to a company with more specialization in that particular area. With better management of costs and improved handling of operations, the operational efficiency will increase
- Optimum utilization of resources
By outsourcing, a company’s internal resources can be utilized in a better way for some other functions. This avoids unnecessary expenditure by reducing the need to invest too much time and capital in non-core activities.
- Abundance of skilled manpower
A key driver to outsource certain business activities to low-cost locations is the abundance of skilled manpower and resources.
- Lack of availability of internal resources
Outsourcing could be considered when the number of employees available in a company to handle a function is inadequate or if their level of competence to handle a particular task is questionable.
What are the risks in outsourcing?
o Loss of control over production
o Could result in lower product quality
o Could result in loss/misuse of intellectual property rights
What is the difference between off-shoring and outsourcing?
The difference between outsourcing and offshoring is that outsourcing is either a local or international transfer of operations to a third-party contractor, whereas offshoring transfers operations to another country.
State and explain shortly three important advantages/benefits of outsourcing
- Swiftness and Expertise
When outsourcing to specialized vendors, they usually have a specific technical expertise. Thus, the tasks can be completed faster and with better quality output.
- Focus on core business process
Outsourcing supporting business processes give the organization more time and focus on strengthening core activities.
- Reduced operational and recruitment costs
Outsourcing eludes the need to hire individuals in-house; hence, recruitment and operational costs can be minimized to a great extent.
State and explain shortly three important disadvantage/risk of outsourcing for companies.
- Hidden costs
Although outsourcing could be cost-effective at times, the hidden costs involved (such as possible currency fluctuations, the cost to monitor the quality of output provided by the vendor, cost of transitioning the in-house task/activity to an external vendor).
- Lack of customer focus
An outsourced vendor may be catering to the expertise needs of multiple organizations at a time. In such situations, vendors may lack complete focus on your organization’s tasks
- Synchronizing the deliverables
Some of the common problem areas of outsourcing include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities.
- Risk of exposing confidential data
When an organization outsources, it involves a risk if exposing confidential company information to a third-party.
