As a business, it is always important to seek methods of reducing costs in order to stay profitable. As our economy becomes more global, outsourcing has become a fiercely debated method of reducing costs and improving efficiency. While it can reduce costs, it can also increase other problems. Additionally, most outsourcing sends work overseas, which can impact our country’s economy. In order to decide if outsourcing is the best solution for your own company, let’s discuss the benefits and risks that are inherent with taking this action.
While there are risks as outlined above, the benefits may far outweigh the risks involved. If you can find a reliable company that will respond readily to problems and complaints, you can work to improve overall cost and profitability. Benefits of outsourcing are:
- Working with Specialists: Assigning specialized work to niche vendors can impact your manufacturing or service by improving both speed and efficiency. If a vendor knows more about the process than you do, work gets completed faster and customers are pleased.
- Focus on the Big Picture: Outsourcing the detailed work to vendors allows you to look at the big picture and how you can improve the entire process for a better result. If you are always putting out small fires, you may miss opportunities to develop a better product or service.
- Sharing Risks: By sharing the workload, you also share the risks involved. That can work for or against you, but choosing high-quality and reliable vendors will work in your favor.
- Reduced Costs: Reducing costs is the primary impetus behind outsourcing. Your company can lower costs in equipment, labor, human resources and supplies.
Outsourcing is the process of seeking outside sources to provide supplies, goods or services to your company or customers. The primary reason for outsourcing is to reduce the costs of providing the same in-house. In the United States, skilled and unskilled labor is more costly than in many other countries. However, there are risks inherent with this practice. Some of the risks include:
- Confidentiality: As you push your work to other companies, you risk the confidentiality of data or proprietary processes.
- On-Time Delivery: While an outside source is subject to your control, you have less control as you do when the work is done in-house.
- Hidden Costs: Sometimes there are costs inherent with working across borders such as import taxes or currency exchange rates that you would not have in-house.
- Reduced Customer Service: Customer service can be reduced dramatically depending on what service you are outsourcing. Customers that deal with interactions that involve language barriers or poor training become extremely agitated and may drop your service. An additional issue is the lack of priority customer service from people in another culture.
No matter what you do, there are risks involved. It’s just a matter of weighting all of the variables and selecting the right choice based on the facts in front of you.
What’s not a risky decision? Checking out the Masters in Logistics and Supply Chain Management, program at Georgia College. For more information, contact us here!