Outsourcing Explained

What is outsourcing?

Delegating one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard

What are examples of processes which are outsourced by businesses?

• Delivery/Logistics

• Call centres

• Computer systems

What choices are made by a businesses when outsourcing?

• What should a business do itself?

• What should a business buy in from others?

What are the benefits of outsourcing?

• Access specialist suppliers with greater capabilities and higher quality

• Reduce costs if outsourcing suppliers can provide at lower cost (e.g through economies of scale)

• Focuses the business on its core activities- where it can ‘add value’

• Makes operations more flexible- e.g., it easier to change capacity when needed

What are the drawbacks of outsourcing?

• There is a risk that outsourcing supplier will fail to meet quality standards or otherwise not deliver

• Potential loss of expertise from the business

• There is no guarantee that costs will be lower