Outsourcing
- Submitted by: csurney
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- Date Submitted: 12/15/2011 05:05 PM
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INTRODUCTION
In the hard economic times the United States is facing, a growing trend being adopted by many companies is outsourcing. Outsourcing allows the company to hire outside help in order to complete some of the company’s productions and/or services for a lower cost. Also outsourcing may increase the productivity rate. As with any other business venture, there are advantages and risks associated with outsourcing.
DEFINITION
“The contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. Companies having strengths in other areas may contract out data processing, legal, manufacturing, marketing, payroll, accounting, or other aspects of their businesses to concentrate on what they do best and thus reduce average unit cost. Outsourcing is often an integral part of downsizing or reengineering. Also called contracting out” (Businessdictionary.com)
ADVANTAGES OF OUTSOURCING
According to author Dean Meyer of SourcingMag, there are four distinct advantages of outsourcing. They are as follows:
(1) Outsourcing can save you money.
(2) Outsourcing can help you share risk.
(3) Outsourcing can help accommodate peak loads.
(4) Outsourcing can help develop your internal staff.
The first advantage is that outsourcing can save you money. Money will be saved because outsourcing will assist in unit costs going down while hopefully volumes will increase. “External service providers can achieve economies of scale unavailable to individual firms when they combine the volumes of multiple companies” (Meyer 2005). Certain conditions must be met in order for outsourcing to save the company money. The article mentions the following stipulations;
(1) Economies of scale must exist. There must be some economic advantage to larger size or greater numbers before outsourcing can pay off.
(2) The economies must be accessible across corporate boundaries. Savings...
In the hard economic times the United States is facing, a growing trend being adopted by many companies is outsourcing. Outsourcing allows the company to hire outside help in order to complete some of the company’s productions and/or services for a lower cost. Also outsourcing may increase the productivity rate. As with any other business venture, there are advantages and risks associated with outsourcing.
DEFINITION
“The contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. Companies having strengths in other areas may contract out data processing, legal, manufacturing, marketing, payroll, accounting, or other aspects of their businesses to concentrate on what they do best and thus reduce average unit cost. Outsourcing is often an integral part of downsizing or reengineering. Also called contracting out” (Businessdictionary.com)
ADVANTAGES OF OUTSOURCING
According to author Dean Meyer of SourcingMag, there are four distinct advantages of outsourcing. They are as follows:
(1) Outsourcing can save you money.
(2) Outsourcing can help you share risk.
(3) Outsourcing can help accommodate peak loads.
(4) Outsourcing can help develop your internal staff.
The first advantage is that outsourcing can save you money. Money will be saved because outsourcing will assist in unit costs going down while hopefully volumes will increase. “External service providers can achieve economies of scale unavailable to individual firms when they combine the volumes of multiple companies” (Meyer 2005). Certain conditions must be met in order for outsourcing to save the company money. The article mentions the following stipulations;
(1) Economies of scale must exist. There must be some economic advantage to larger size or greater numbers before outsourcing can pay off.
(2) The economies must be accessible across corporate boundaries. Savings...