Outsourcing – What Are the Advantages and Disadvantages of Outsourcing?

Outsourcing is a common business strategy. Organizations outsource functions, activities, processes and decision responsibility to outside providers. Outsourcing is done through contract agreements with vendors that take on the risk and responsibility for the quality, people management, process and service of a business function. Outsourcing helps to reduce organizational overhead costs.

So why do organizations outsource?

Organizations outsource so they can reduce their operating costs and have more time to focus on their core business. Outsourcing allows an organization to outsource an entire function or just a part of it. For example, you can outsource the payroll function while keeping the rest of the accounting function in-house.

Outsourcing can be part of a strategic initiative to reduce costs and improve customer service and quality. It can be flexible and used for a permanent solution or as a temporary arrangement to learn improved techniques, redesign a faulty product or bridge a staffing gap.

Businesses should look for outsourcing opportunities and potential areas within the organization to determine if all or just part of a function should be considered for outsourcing.

Every organization is different and may have varying needs for outsourced services. Some of the more common operational functions that can be outsourced are:

  • Accounting
  • Customer Support
  • Facility Management
  • Human Resources
  • Information Technology
  • Legal
  • Manufacturing
  • Marketing
  • Order Fulfillment
  • Payroll

Outsourcing Advantages

Core Business Focus

Organizations that outsource functions of their operation have the ability to focus on their core business and what they are good at. As organizations grow, they are required to deal with business functions outside of their expertise. Leadership spends time and energy trying to learn and manage a system or function that they may know nothing about. This distraction can take away from focusing on their core business. An example of this would be a grocery store that adds video rental to their business. If the store puts too much focus on the video side of the operation, they may lose focus on groceries which is their core business.

Cost Savings

Cost savings can be significant with outsourced business functions. Savings can be in compensation costs, manufacturing setup or expenses associated with office space. These savings free up resources that can be used for other purposes.

Enhanced Quality

Quality can be improved by utilizing vendors who have the expertise and specialization for some functions. An example of this might be outsourcing a custodial function. A custodial vendor would often be more equipped for facility inspections, hiring and training that might not otherwise be available if done in-house.

Higher Customer Satisfaction Scores

Vendor agreements typically guarantee certain levels of quality and service that may be more difficult to manage in-house. An example of this might be if the custodian calls in sick, it is the vendor’s responsibility to find a replacement to meet a contractual agreement.

Efficiency in Operations

Vendor specialization offers increased levels of efficiency that can provide quicker turnaround and higher levels of quality. These specialized vendor processes can be more efficient because it is the vendor’s core business.

Disadvantages of Outsourcing

Service Quality

It is important to make sure that there are measurable levels of service quality written into the vendor agreement. It is common for vendors to leave these measurable service levels out of the agreement to save on costs.

Quality Risks

Outsourcing does expose organizations to certain public relations, legal and potential quality risks. An example of this would be if a car has faulty parts and is recalled, and the faulty part was outsourced, the car manufacturer still carries the burden of correcting the problem. The vendor would need to correct the issue but the negative public perception would need to be addressed by the manufacturer.

Language Barriers

When customer call centers are outsourced to a country that does not speak fluent English there may be a language barrier. Customer dissatisfaction can happen when a customer service rep has a strong accent that is difficult to understand.

Public/ Employee Opinion

There can be public and employee sympathy for employees who lose a job that is now being outsourced. This is sensitive and needs to be handled with compassion and tact. Communicating such changes needs to be diplomatically strategized to minimize the negative impact.

Tacit Knowledge

Outsourced employees do not share the same tacit knowledge and passion for the organization as regular employees. When outsourced employees come in contact with customers, they may not have the same knowledge base of the organization.

Organized Labor Issues

Organized labor has strong feelings about, and has resisted outsourcing to other countries. Pro-labor groups oppose this management approach that is perceived to result in a lower standard-of-living and worse working conditions. This perception can affect workforce productivity as it responds to corporate outsourcing.

Security and Legal Compliance

Outsourced functions need to be managed to ensure system security and legal compliance. Processes that involve security or legal compliance should be formally addressed through documentation. For example, an outsourced customer support person may have access to confidential customer information that could be used inappropriately.

Reduction in Force

Employee layoffs can be a common result of outsourcing. A well planned strategy for outsourcing will do so through attrition and job reassignment. This can be difficult but can help offset morale issues with remaining employees.

Organizations should have a well thought out strategy and plan for outsourcing functions of their business. It also is important to solicit at least three Requests for Proposals (RFP) to ensure the best use of resources.

Cut Dental Costs and Boost Savings

Types of Engineering

aerospace engineering

The aerospace engineers are concerned with the design, analysis, construction, testing and operation of flight vehicles, including aircraft, helicopters, rockets and spacecrafts. The course is based on the fundamentals of fluid dynamics, materials science, structural analysis, propulsion, aerospace design, automatic control and guidance, and development of computer software.

agriculture engineering

With increase in growth and associated industrial potential, Indian agriculture has now been accorded the status of an industry. The course on Agricultural and Food Engineering aims at producing engineering graduates to meet the requirement of technical manpower in development of farm machines, land and water resources management, agricultural production and manufacture of processed food. In order to meet the present demand of agricultural and food industries, the course has been suitably modified to include specialized training in design, development, testing and selection of tractors and farm implements, irrigation, drainage and watershed management using Remote Sensing and GIS; information technology, processing of food, fodder and fibre, utilization of biomass, byproducts and wastes in the production of biochemicals, fuels, manure and non-conventional energy. The course provides ample flexibility to the students for acquiring expertise in any of the three major areas of specialization, namely, Farm Power and Machinery, Soil and Water Conservation Engineering, and Food Process Engineering.

biotechnology

The goal of this program is to prepare the students, both in theory and practice, for leadership in the globally competitive fields of Life Science, Pharmaceutical, Biotechnology industry, academia and research. The program has been developed to meet the increasing demand in these fields of industry and researcth. Students of this program would find unique opportunities of employment and research in the areas of biomedical engineering, drug design, bioinformatics, biotechnology, nano-biotechnology, genomics etc. The course is designed to introduce biology as an experimental science, in contrast to its commonly perceived notion as a descriptive subject. The students will also find the application of a wide range of techniques in physical, chemical and mathematical sciences for designing, executing and interpreting experiments in biology.

chemical engineering

Chemical engineers work in diverse fields like petroleum refining, fertilizer technology, processing of food and agricultural products, synthetic food, petrochemicals, synthetic fibres, coal and mineral based industries, and prevention and control of environmental pollution. Chemical engineering is concerned with the development and improvement of processes, design, construction, operation, management and safety of the plants for these processes and research in these areas.

civil engineering

A civil engineer is concerned with planning, analysis, design, construction and maintenance of a variety of facilities such as buildings, highways and railways, airports, waterways and canals, dams and power houses, water treatment and waste water disposal systems, environmental quality control, docks and harbours, bridges and tunnels. A civil engineer is also required to deal with critical problems of today such as disaster mitigation and management, constructing offshore structures for oil production,

chemical engineering

Some chemical engineers make designs and invent new processes. Some construct instruments and facilities. Some plan and operate facilities. Chemical engineers have helped develop atomic science, polymers, paper, dyes, drugs, plastics, fertilizers, foods, petrochemicals… pretty much everything. They devise ways to make products from raw materials and ways to convert one material into another useful form. Chemical engineers can make processes more cost effective or more environmentally friendly or more efficient. As you can see, a chemical engineer can find a niche in any scientific or engineering field.

mechanical engineering

Mechanical engineers design and develop everything you think of as a machine – from supersonic fighter jets to bicycles to toasters. And they influence the design of other products as well – shoes, light bulbs and even doors. Many mechanical engineers specialize in areas such as manufacturing, robotics, automotive/transportation and air conditioning. Others cross over into other disciplines, working on everything from artificial organs to the expanding field of nanotechnology. And some use their mechanical engineering degree as preparation for the practice of medicine and law. The mechanical engineer may design a component, a machine, a system or a process. Mechanical engineers will analyze their design using the principles of motion, energy, and force to insure the product functions safely, efficiently, reliably, and can be manufactured at a competitive cost.

electrical engineering

Electrical engineering is concerned with the basic forms of energy that run our world. Whether it’s gas, hydro, turbine, fuel cell, solar, geothermal, or wind energy, electrical engineers deal with distributing these energies from their sources to our homes, factories, offices, hospitals, and schools. Electrical engineering also involves the exciting field of electronics and information technology. Do you have a cellular phone or a computer? Wireless communication and the Internet are just a few areas electrical engineering has helped flourish, by developing better phones, more powerful computers, and high-speed modems. As we enter the 21st century, the technology that surrounds us will continue to expand and electrical engineers are le way

electronics and communication engineering

Design, fabricate, maintain, supervise, and manufacture electronic equipment used in the entertainment media, in hospitals, in the computer industry, for communication and in defense. Electronics engineers work with devices that use extremely small amounts of power. They work with microprocessors, fibre optics, and in telecommunication, television, and radio.

production engineering

These deals with integrated design and efficient planning of the entire manufacturing system, which is becoming increasingly complex with the emergence of sophisticated, production methods and control systems. Job and Scope: Opportunities are available in public and private sector manufacturing organizations engaged in implementation, development and management of new production Process, information and control systems and computer controlled inspection, assembly and handling. Biomedical Engineering: Biomedical engineering (BME) is the application of engineering principles and techniques to the medical field. It combines the design and problem solving skills of engineering with medical and biological sciences to help improve patient health care and the quality of life of individuals.

materials engineering

New materials have been among the greatest achievements of every age and they have been central to the growth, prosperity, security, and quality of life of humans since the beginning of history. It is always new materials that open the door to new technologies, whether they are in civil, chemical, construction, nuclear, aeronautical, agricultural, mechanical, biomedical or electrical engineering.