Outsourcing Advantages and Disadvantages.

Outsourcing is the practice of hiring a third party to perform a business function or service instead of performing it in-house. Outsourcing can be an effective way for companies to access specialized expertise, reduce costs, and increase efficiency. However, it is important to carefully consider the potential advantages and disadvantages before deciding to outsource a business function or service.

Some potential advantages of outsourcing include:

1. Cost savings: Outsourcing can help companies reduce costs by leveraging the economies of scale and specialized expertise of third-party vendors.
2. Improved efficiency: Outsourcing can help companies access the latest technologies and processes, which can improve efficiency and productivity.
3. Access to specialized expertise: Outsourcing can provide companies with access to specialized expertise and resources that they may not have in-house.
4. Focus on core competencies: Outsourcing non-core business functions can allow companies to focus on their core competencies and strategic priorities.

However, there are also some potential disadvantages of outsourcing to consider:

1. Loss of control: Outsourcing can result in a loss of control over business processes and operations.
2. Quality concerns: Outsourcing can lead to concerns about the quality of the services or products being provided.
3. Communication challenges: Managing communication and coordination with external vendors can be challenging.
4. Cultural differences: Outsourcing to vendors in other countries can lead to cultural differences that can affect communication and understanding.

Overall, outsourcing can provide companies with a number of benefits, but it is important to carefully consider the potential advantages and disadvantages before making a decision to outsource a business function or service.

Advantages to Outsourcing

• Cost reduction

• More flexibility with manufacturing and capacity.

• Lower labor costs

• Capital does not need to be invested in machinery or plant capacity

• Not a core competency so outsource it

• Flexibility

Why People Don’t Outsource

• Loss of control over the process.  It is imperative to choose the correct outsourcing partner and to form contractual arrangements to ensure appropriate delivery and lead times.

• Afraid of outsourcing competitive advantage.  IBM outsourced both the microchip (Intel) and the operating system (Microsoft).

• Partnering with wrong supplier.

• Costs are not justified

• Company wants to vertically integrate

• Does not understand the benefits of outsourcing

Companies and the Products they Outsource

Company	Products outsourced
Apple	iPhone manufacturing, component manufacturing
Nike	Shoe manufacturing, clothing manufacturing
Ford	Vehicle component manufacturing, software development
Google	Customer support, software development
Amazon	Customer support, software development
Microsoft	Customer support, software development
Procter & Gamble	Consumer goods manufacturing, product development
IBM	Software development, IT services
General Electric	Industrial products manufacturing, software development
Pfizer	Drug manufacturing, clinical trial management
Accenture	Consulting services, software development
Infosys	Consulting services, software development