outsourcing

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Outsourcing

Purchasing a significant percentage of intermediate components from outside suppliers.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
C&L: Outsource engagements of the type you envision are generally fixed-fee type arrangements where the obligation to attain efficiency passes to the vendor of the outsourced service.
That is especially true if the outsourced functions relate to critical aspects of the customer's business, including financial reporting obligations, or the customer has concerns about maintaining the confidentiality of its or its customers' data or personal information.
Loan officers receiving the case in which the external auditor performed management functions for the outsourced internal audit gave the case the lowest independence ratings, financial statement reliability scores and loan approval rate.
When high-cost existing processes are outsourced, the cost-benefit analysis may easily favor outsourcing.
Insurance providers are also required to continuously monitor the business process outsourcing (BPO) provider in the performance of the outsourced activities and are expected to ensure continuity of business operations if the outsourced BPO provider can not perform the outsourced activities.
The Outsourcing Rules require banks to have a plan in place to ensure business continuity if the outsourced service is disrupted.
According to the findings of some studies, the main problem of senior managers in organisations is determining the services which should be outsourced.
According to our early data, more than 4 in 10 biopharmaceutical manufacturers believe their budgets for outsourced manufacturing will increase over the next 12 months, including almost 3 in 10 overall who plan hikes of at least 10%.
The market for the service providers of outsourced services is growing rapidly and concurrently HR outsourcing has evolved from only having a single source, to a situation where multiple service providers can be easily contracted to satisfy the difference needs of the organizations (Lilly et al.
A 2011 survey by Ilan Oshri and Julia Kotlarsky of the Warwick Business School, commissioned by the outsourcing firm Cognizant, found that 70 percent of the 250 CIOs and CFOs who responded believed that outsourced innovation had contributed significantly to their organizations' financial performance; 53 percent said that a vendor's innovation capabilities were an important factor in selecting an outsourcing firm.
The vital business activity which is being outsourced for the sake of firm's performance improvement is transportation outsourcing (De Kluyver and Pearce 2006).
Research by Oxford Economics for the Business Services Association shows that outsourced services are responsible for 100,600 jobs in Wales - some 7.3% of all jobs in the region.