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 ?
That alone has driven about 12 universities to outsource some aspect of their energy management.
AICPA members must enter into contractual agreements with outsource providers to maintain and assure the confidentiality of clients' information.
Instead, they decided to outsource only the sales and use tax function associated with the newly acquired companies--an area that they felt was performing below par and consuming too many valuable internal resources.
If we don't believe we have a competitive advantage for doing it sourcing is so extensive that the firm has a global outsource.
The expectation of better use of capital investments was highest among those who outsource call center operations (78 percent) and human resources (72 percent).
How do you determine "how far up" to outsource in a proposal?
Swiss Re outsources business support of various administrative activities, including technical reinsurance accounting, contract administration, claims settlement, current account management and writing special business reports for external and internal needs.
Regardless of the form chosen, decisions to reduce or partially outsource the tax function cannot be easily reversed in the near term.
Even though the long-term goal may be to fully outsource the services provided by the real estate department, the scope and service-level expectations must be aligned with your company's critical business drivers.
ATLANTA -- Reduced payroll tax penalties are only one of the benefits for companies that outsource payroll processes or payroll tax filing, according to the 2006 Empagio Executive Study on Payroll and Tax Filing, a national survey of financial and human resources (HR) executives.
The decision to outsource must have compelling business rationale, be it cost reductions, optimized processes, better service levels or innovation, and those priorities must be kept in mind in evaluating options.