outsourcing

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Outsourcing

Purchasing a significant percentage of intermediate components from outside suppliers.

Outsourcing

The practice of a company hiring a different company to supplement its services at a lower cost. For example, a company may outsource its accounting to another firm, which would then prepare and provide appropriate statements for the company. Likewise, an automobile manufacturer may buy auto parts from another company and use them to make its own cars. Companies outsource in order to reduce their costs and thereby reduce the prices they charge for their goods and services. The practice is somewhat controversial, especially as some companies in the developed world outsource to firms in other, often developing nations. Critics contend that this drives jobs out of the home country, while proponents argue that this benefits consumers.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self supply from within a firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10 year outsourcing agreement with IBM which involves IBM taking over the Bank of Scotland's computer systems and operating them. The deal will enable the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own. On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. See SOURCING, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION, VIRTUAL CORPORATION.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self-supply from within the firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10-year outsourcing agreement with IBM that involved IBM taking over the Bank of Scotland's computer systems and operating them. The deal enabled the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own.

On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. The decision to produce internally or outsource will depend upon the combined production costs and TRANSACTION COSTS of the alternative supply source. See TRANSACTION, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION.

References in periodicals archive ?
There is a costing methodology that can be used for insourcing that was developed by DOD, and one which has been reaffirmed by Republicans and Democrats alike, known as the Directive-Type Memorandum (DTM) 09-007 on Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contractor Support-and it should be adapted for insourcing by non-DOD agencies now.
The transition toward internal IT should be gradual, and you need to build time and budget into the process, especially when the insourcing push affects multiple entities within the organisation.
Underscoring his push for insourcing, Obama's administration recently unveiled a corporate tax reform plan which includes two key measures to encourage domestic investment: reducing the effective rate on manufacturing to no more than 25 percent; and establishing a new minimum tax on foreign earnings.
The market research firm Input forecasts that most agencies will follow the same path: first, insourcing acquisition-related jobs, then turning to services such as IT, program management and systems integration.
A routine becomes important immediately, Carpenter says, because one of the toughest parts of insourcing e-discovery is having to deal with problems internally.
Will insourcing change the face of American Catholicism?
Kettering University has experts to discuss the trend of insourcing.
In addition, by insourcing, we are significantly reducing the maintenance cost, resulting in much-wanted cost-savings to the company which is very important at this juncture.
Specifically, in making outsourcing decisions, many organizations continue to confuse outsourcing with offshoring, do not address quality adequately, and only use insourcing as a post contract termination strategy one-third of the time.
Industry critics of insourcing are making it sound as if the Pentagon is taking away all the work from contractors, Hessel says.
In an interview with the newspaper Federal Times, Dan Gordon said insourcing and greater oversight of contractors are key to the administration strategy.
Determining whether to obtain services through insourcing with current or new federal employees, outsourcing with private sector contractors, or cosourcing with a combination of the two is an important economic and strategic decision critical to the federal government's effective and efficient use of taxpayer dollars.