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 ?
With the foundation and partner in place, claims business-process outsourcing can be employed as a means to enhance and extend the performance of the operation.
Still, Elmore isn't spinning when she claims that comprehensive outsourcing as a strategy for campuses is not stagnating, but simply resting before the next crest.
There are fundamental differences between product outsourcing and the outsourcing of service functions, differences that were overlooked but have now come to the fore," says Ken Landis, a senior strategy principal at Deloitte.
The tax cosourcing approach offered the company the flexibility management sought; by outsourcing only the sales and use tax compliance work, the company was able to retain its highly valued tax professionals while dispensing with a highly repetitive and tedious manual function.
On-demand services are displacing traditional IT outsourcing contracts.
Experts recommend the following books to help with the outsourcing process: Turning Lead into Gold: The Demystification of Outsourcing by Peter Bendor-Samuel (Executive Excellence; $12.
a section, with charts, of factors to consider when evaluating outsourcing proposals
BP plc (the former British Petroleum) was one of the first global firms to commit aggressively to outsourcing non-core business processes.
Business process outsourcing is emerging as a strategic response to current economic and marketplace realities because it enables carriers to increase their focus on differentiating value-producing aspects of their business, increase operational efficiencies and become more flexible as business conditions warrant.
Business process outsourcing already is widely embraced, especially among larger organizations.