Outsourcing is the business practice of hiring a party outside a company to perform services or to create goods that were traditionally performed in-house by the company’s own employees and staff. In other words, it is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally. Sometimes, this process involves transferring employees and assets from one firm to another. The term outsourcing was coined from the phrase ” outside resourcing ” and originated sometime in 1981. The practice of handing over control of public services to private enterprises, even if on a short-term limited basis, is also described as outsourcing. Some of the examples of outsourcing include payrolls, accounting services, staff training, technical support, call centers, supply chains, research, and development, etc.
BENEFITS OF OUTSOURCING :
• To reduce capital costs – Outsourcing gives a company, the ability to keep a tight rein on their overheads. By releasing funds that would otherwise be allocated to staff wages, a business can turn fixed costs into variable costs. This provides businesses with a huge opportunity to reallocate these funds to other areas of their business.
• Reduced labor costs and better expertise – Sub-contracting chosen business activities to other companies help businesses to reduce expense on full-time human resources. Outsourcing also has the added benefit of enabling a company to engage in the services of a wide range of expertise, without the additional costs of funding a permanent, high-level salary.
• Fewer regulations- Developing countries often have low-level regulatory restrictions, which can also reduce the cost of operations and increase productivity. Thus outsourcing can reduce operational costs.
• Focus on core competency – Companies often outsource the work which the business is not optimized to perform. They can thus focus on the activities at which they excel. This will increase productivity, efficiency, and effectiveness.
• Reduced overhead – Outsourcing can reduce a company’s overhead costs because the outsourcing company uses its own facilities, equipment, and personnel to perform the work.
• Flexibility – If your business has operations with cyclical or seasonal demands to bring in extra staff, outsourcing provides an opportunity to avail of additional resources when you need them and release them when they are no longer required.
TYPES OF OUTSOURCING :
Today there are many different types of outsourcing that can increase a business’s productivity and reduce costs. A few of the main categories include –
• Professional outsourcing – This is one of the most popular types of outsourcing as there is potential for high-cost savings. Professional outsourcing includes accounting, legal, purchasing, or administrative support among the specialized services.
• IT outsourcing – One of the most common services today, IT outsourcing involves subcontracting an outside organization to take care of all or part of a business’s IT requirements. These requirements range from software development to maintenance and support.
• Manufacturer outsourcing – Manufacturer outsourcing services are usually quite industry-specific. Such outsourcing arrangements can result in significant cost reductions and quicker assembly time.
• Project outsourcing – Many businesses outsource their projects to a project management company. In some cases, the company may not have enough in-house people with the necessary skills to work on the projects. It may also cost more to complete the project in-house than to outsource to another more qualified company.