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 ?
Contrasting this view, one could argue that gains from flexibility might be larger for outsourcing than for insourcing because firms can easier shift production to other suppliers if the international activities are outsourced rather than insourced (Rodriguez and Nieto 2016; Jiang et al.
We believe that insourcing activities on the upper right hand quadrant of Figure 1 are the hardest to plan for, as is revealed in this article.
It falls upon the shoulders of the CLO or GC to understand and manage the internal cost of delivery: insourcing without metrics is nothing.
It's running a multi-media 24x7x365 outsourcing contact centre operation in Hong Kong with ISO 9001 and ISO 27001 certification, hosting over 850 workstations and around 900 contact service staff to provide professional outsourcing inbound and outbound contact centre services, staff insourcing services and contact centre facilities management services to corporate clients in banking, insurance, telecommunications, government departments, etc.
Nevertheless, policymakers should encourage insourcing as much as possible, even if net job growth might be a fraction of what's been lost.
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.
"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.
AMERICANS ARE LIKELY to hear more about "insourcing" as the 2012 presidential campaign unfolds.
The administration also continues to push for "insourcing" through tax breaks to encourage greater domestic investment, included as part of last week's corporate tax reform proposal from Treasury.
It sounds easy - after losing jobs to Asia and South America through outsourcing, the United States must reverse the process with insourcing, maintained US President Barack Obama in his State of the Union address.
The White House forum on "Insourcing American Jobs" will be held on Wednesday.
For cost reasons, many companies are beginning to prefer insourcing and in-shoring jobs in order to maintain quality and locus of control.