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 ?
The answer to this question might be "What are companies not outsourcing?" All functional areas are candidates for outsourcing, as long as the decision to outsource makes strategic and operational sense.
This new approach challenges and encourages the outsource provider to apply innovative solutions and/ or investments to solve a client's problem and to create value.
AICPA members must enter into contractual agreements with outsource providers to maintain and assure the confidentiality of clients' information.
Thus, firms that outsource may achieve long-run advantages compared to firms relying on internal production.
Just as important as internal assessments are to any decision to outsource, so are external considerations.
Since the firm began to outsource painting, several other customers have requested it, and some of them have even closed their own paint operations due to similar concerns about Title V air permitting requirements.
The third group, labeled "use subservicer," are companies that outsource all or part of nine or more of the 13 servicing functions.
The big deal is that those who decided to outsource bits and pieces of their tax fiefdoms are now finding themselves outsourced by upper management.
D&B outsources all or part of its customers' credit and receivable management functions, from assessment and processing credit applications, to invoicing and customer follow-up.
BARROWS: Outsourcing is theoretically cheaper than doing it internally because outsources have broader expertise.
This outsources the receivables accounting to the bank.

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