April 15, 2019
Different types of outsourcing that you need to know
Aside from knowing and understanding what is outsourcing from both outsourcing jobs definition and outsourcing jobs meaning from different business areas and how it works, it is also necessary to have an idea of the different types of outsourcing. It will enable you to choose which kind would best fit for you and your business.
When running a company, there are times that complicated business tasks and processes can’t be accomplished by your own employees. It might be because of a lot of factors such as the lack of training in employees to complete the task with the highest quality, lack of time, or the lack of the necessary tools to complete such tasks.
In these cases, it is more economical to outsource professionals than hiring one. Professional service outsourcing is considered as the most common type of outsourcing as it can help save massive amount of cash on overhead costs. Common professional services being outsourced include accounting and legal.
Offshoring IT services is among the common types of outsourcing these days. It pertains to contracting technology-related services and resources for a part or the entirety of an information technology business function. IT outsourcing explained a common business process that is used from infrastructure, maintenance, and development, as well as customer support. Every business, whether it is a start-up or a large corporation, has IT needs as it deals with technology on a certain level.
Example of IT outsourcing is contracting an IT management team for a business, eliminating the need to build an expensive in-house IT team. It can also be outsourcing data storage as buying one for in-house use can be rather expensive and the maintenance can cost a lot of money and resources too. You can utilize some IT outsourcing articles to find out more about how it works and why it can work for you.
Multisourcing can be applied to any business areas, but is most common in outsourcing IT services. Simply put, multisourcing combines outsourcing IT services and other business functions from external service providers.
Multisourcing forms the best-of-breed teams to achieve business goals. It operates in a manner where the business creates a partner relationship with other providers and is outcome-focused as it provides a clear view on the status of the projects.
This type of outsourcing mostly requires a business to have a comprehensive strategy and a network of governance and relationships.
The cost, if you decide to make your own products in-house, can be extremely expensive especially if the raw materials you are going to use are sourced elsewhere. Aside from the high cost of the raw materials, paying for the factory workers can also be massive, as well as the capital for infrastructure and equipment you need for manufacturing.
However, if you outsource the manufacturing process of your business, you can significantly reduce your cost as you don’t need to worry about infrastructure and equipment, as well as the labor costs.
Manufacturing outsourcing has become common, and is usually industry-specific. For example, in the auto manufacturing business, one can outsource building and installation of their car windows. This type of outsourcing is not only applicable to such large corporations; it can also be advantageous to small scale businesses who want to compete with the bigger businesses in the market. It provides the means to scale up in manufacturing products without having to hire a lot of personnel and upgrade equipment.
However, as much as manufacturing outsourcing can significantly cut costs, it does come with a certain level of risk especially in the quality issues.
There are outsourcing processes that are specific to a certain task or an internal procedure, something more known as process-specific outsourcing. It has become common in the industry to contract an external service provider that specializes in a particular service.
For example, a retail service can outsource their delivery services to a particular company, especially for their international shipping. This type of offshore outsource method usually have a very comprehensive contract which includes detailed things like the delivery timeline, product costs, and customer contacts.
Process-specific outsourcing provides businesses the means to not only cut costs but to also have the time to focus more on their core business functions, saving the time it usually takes to fulfill customer orders.
Business Process Outsourcing
Business Process Outsourcing is the most common type of outsourcing, and it deals with contracting any business process to a third-party service provider. It is especially common in the manufacturing industry, outsourcing necessary business operations as there are quite a bit of tasks and steps to be done to achieve a high-quality end result.
For example, equipment repair and machine maintenance can be outsourced from an external service provider instead of creating an in-house team for the job. It will cut costs, especially since it keeps you from putting in employees under your payroll for a non-daily task. You can also business processing outsource other common operational tasks such as cleaning services, landscaping, property management, and facilities maintenance.
When companies are juggling with several projects, it can usually be tedious, and the quality of the output can be compromised with the lack of time to focus on each one of them. In this case, a business can outsource a project to a third-party. A whole project can be contracted, or a part of it can be sub-contracted.
There are various reasons why a company outsource a project, but the most common one is the lack of available people to do and finish the task or the lack of skills for the job. It is also a more cost-effective choice compared to spending time and money in training current employees.
Offshoring or offshore outsourcing simply means contracting a part of your business process in another country, which is a strategy to lower labor expenses. There are other countries that require cheap costs to finish a certain task compared to doing it locally. In addition, offshoring is also done to tap the global skills offered by other countries as well as enter new markets in the hopes of becoming global.
Offshoring has also become an accepted idea to overcome local regulations that prohibits particular activities.
While there are companies that find hiring offshore labor the cost-effective move in contracting business process, some find it the opposite and they start to bring back offshoring activities locally. It is commonly known as reshoring, which can simply be described as transferring a business operation from another country to the business’ home country.
Reshoring can have several advantages, especially in cutting product shipping costs as the price of oil has risen. It also helps answer the issues of time delays, long shipping times, and custom charges in having the production service in another country.
Some businesses even go further as to bringing their outsourced services in-house which is called insourcing.
Nearshoring lies between offshoring and reshoring business functions. Instead of bringing back the outsourced services from a far-away country locally, some companies choose to move their business operations to the geographically close countries. Its main purpose is to improve services by lessening the allotted time for shipping and time delays, which are common issues in offshoring, while still cutting costs by finding the nearest country where labor services are cheaper than doing processes locally.
Basically, this type of outsourcing combines the benefits of reshoring and offshoring, as well as combating the risks of both.