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 ?
Telecom Industry Saves Cost with Network Outsourcing II-6
Claims business-process outsourcing requires considerable forethought about how it fits into the claims operation.
Of those polled, 36 percent said they were likely to add still more functions to their outsourcing lists.
Outsourcing provides seasonal labor without the overhead of permanent hires, which is particularly helpful to firms dealing with a staff shortage.
Nearly half of the study participants identified hidden costs as the most common problem when managing outsourcing projects.
Testing the outsourcing model at relatively low risk to the organization.
When you have those kinds of rates, that's not even an advantage over Silicon Valley," points out Harry Sarwari, chairman of outsourcing firm OneBPO in Freemont, Calif.
Service level agreements (SLAs) around security and high availability are two components of the IT outsourcing contract that often need to be adjusted to match the industry's sensitivity to uptime and security of information.
Dinnocenzo, president at Wexford, Pennsylvania-based consulting and training firm ALLearnatives, says small business outsourcing has been on the rise for about 10 years.
A similar format is used throughout the book's remaining seven chapters, which detail the key steps in the outsourcing process: planning initiatives, exploring strategic implications, analyzing costs and performance, selecting providers, negotiating terms, transitioning resources, and managing relationships.
OPI collaborates with each client to deliver customized business process outsourcing solutions that range from single service functions, such as accounts payable or accounts receivable, to full-service finance and accounting, including general ledger accounting, SEC financial reporting and risk management.
Intelenet Bags Call Center Outsourcing Deal for UID Project 49