Nowadays, lots of businesses are moving some of their responsibilities, in-house functions, activities and processes to other service providers. This technique is called outsourcing and it has gained so much popularity due to the many benefits it can provide to business organizations. Outsourcing takes place when contract agreements are made and sealed with another party who assumes the other responsibilities of the company. These responsibilities and processes include human resources, customer service, production processes, key asset management, quality control and other functions.
This arrangement can be temporary or permanent depending on the needs of the company. This can be done to bridge some gaps, to improve production and to get better systems at a more affordable cost. Usually, business aspects or functions that are outsourced include information technology, marketing research, legal services, facility management, human resources, accounting & payroll, manufacturing and customer call centers. Why do businessmen and entrepreneurs outsource?
Reducing the company’s overhead costs is the most common reason why businesses are after low-cost sourcing. The transfer of non-core jobs also allows companies to focus on their more important tasks. Another factor that encourages organizations to outsource is the cost savings. Usually, employers spend large amounts of money on providing work spaces, compensation for employees and other technology and human-related purposes.
Outsourcing also provides a way for businesses to accomplish efficient operations. This strategy is particularly beneficial if it is provided by parties with specific specialties. This will result to faster and higher quality turnaround time to produce services and products. However, outsourcing also has some downsides that business owners need to know. This technique could mean employee layoffs and job losses. It can also cause negative customer service issues if the services are outsourced to an unreliable or incompetent provider.
If you are a purchasing manager and you are aware of the benefits and downsides of this technique, would you still pursue it? Nowadays, sourcing decisions are increasingly being influenced by ethical, labor, environment and even political considerations. This is clearly shown in the US presidential election where procurement strategies have been strangely caught up. But while politicians focus on employment issues, companies are more concerned over the fact that the suppliers or manufacturers’ location is an intricate evaluation of risk, lead-time and cost. Procurement strategies are becoming more refined and are often differentiated or divided based on the complexity and product.
Although outsourcing has some downsides that one needs to carefully weigh before actually venturing into this kind of industry, it cannot be avoided that low labor costs is the most common driving cause behind this strategy. If a purchasing manager thinks that low-cost sourcing is the best way to ensure the growth of the business, then he should pursue it. But if he thinks that this will not give positive results to the company, it is better to carefully think about it again.
To guarantee long-term economic success, companies should properly serve their clients, irrespective of whether or not they need to outsource the tasks. By focusing on emphasizing a balance between providing quality services and products to the clients and saving money, a company will have a better chance to grow and serve many faithful customers in the future.
