Outsourcing (also referred to as contracting out) is a business practice used by companies to reduce costs or improve efficiency by shifting tasks, operations or processes to an external contracted third party for a significant period of time. Therefore, the task to be contracted out can be performed by the third party either onsite or offsite of the business.
Outsourcing of one’s business functions and activities helps one to concentrate well on one’s core functions and helps controlling costs while working. Consequently, if the following questions come to your mind, then you should consider outsourcing your work:
Outsourcing involves subcontracting parts of a company’s value-chain, (i.e. steps in the design, supply, production, marketing, sales and services processes) to other companies or contractors that specialize in those activities.
Through outsourcing agreements, the client company hires separate companies to perform specific tasks in the value-chain on its behalf. Often, the work is performed under the name of the client. The kinds of outsourcing work performed vary widely across industry sectors.
Some of the common outsourcing activities include: human resource management, facilities management, supply chain management, accounting, customer support and service, marketing, computer aided design, research, design, content writing, engineering, diagnostic services, and legal documentation.
It’s very common for many companies to outsource their complicated tasks and processes. It is the most popular type of outsourcing as it saves a massive amount of money on overhead. The most outsourced services are skill specific such as IT, legal and accounting.
This is the most pushed towards type. However, the cost of making your own products locally is significantly high. Moreover, paying the factory workers and raw material cost is massive. But, if you outsource your manufacturing to china for example, you’ll get much lower cost per product. This has been a growing trend for a while now. So, companies are leaning towards reducing blue collar jobs. Many car company utilizes this process to cut down on their product assembly time and cost. Tedious processes such as installing windows in all their models.
Other models include very niche processes. Internal procedures and such vital processes for the continuity of the system. Many companies outsource processes revolving around their main product. For example, a beer brewing company would normally outsource their delivery of their products to a courier company such as DHL, Bollore logistics etc. Normally, these procedures would include a very detailed contract that entails the nitty-gritty information such as delivery timelines, customer contacts and costs.
This type of outsourcing enables the company to focus on their core strength and improve their overall customer service. All that while reducing the costs and time it would normally take for them to fulfil all their orders personally.
This type is normally associated with the manufacturing industry. That’s because there’s normally quite a bit of operational tasks and steps required to be taken for the end result to be achieved properly. For example, the equipment repairs and machine maintenance is very commonly outsourced to a 3rd party that specializes in such tasks.
In conclusion, The phrase “Do what you do best and leave the rest” has become an internationally recognized business tagline. that is, a company should only seek to subcontract in those areas in which it demonstrates no special ability. This is evident based on the information shared by this article.
About the Author
Thank you for reading this article. The author, James Ndambiri is an avid Business Advisor and Consultant: A Tax Surgeon, Proficient Accountant, Skilled Auditor, a Guru in Financial and Investment management, Expert in Business Strategy Formulation, Business Transformation Wizard, Family Business Advisor, Lecturer, Business Coach and a Family Man.
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