What is Outsourcing mean?
Most people think outsourcing and offshoring are the same. Please know they are not the same. In simple words outsourcing is the process of hiring someone outside the company to do work on company behalf. Normally the hired party is an expert on the dedicated job. A company can outsource any function in the organization. But it is important not to let the outsourced party touch your core business. Not only in logistics and supply chain, using outsourcing for traditionally internally handled activities has become a practice to gain competitive advantages by most of the organizations. Sometimes you may come across some work which is not the cup of tea of your company. Find very difficult to do within the organization. So, you simply hire someone to do it. i.e. Almost all the companies hire janitorial services and security firms. It’s a simple example of outsourcing.
What are Outsourcing Companies?
Any company/person providing facilities/services for the activities outsourced by other companies. These companies are experts in their business with the experience as they have specialised in a particular field.
What are the Common Outsourced Activities in Logistics?
- Hiring employees
What are the Benefits of Outsourcing?
- Can utilise the available resources within the organisation for the core activity
- Ability to focus more on core activity as no need to worry on the other business activities
- Gain the expertise knowledge and the technology to manage business activities
- Competitive advantage with reduced costs
- Cut down the internal staff as most of the activities are outsourced
What are the Disadvantages of Outsourcing?
- The business will depend on third party companies as they do most of the activities
- The threat of leaking business secrets
- The third-party company may manage the same business activity of a few competitors. There is a possibility of a third party company using the same promotional method to all the companies
- Customers may get dissatisfied and worry to buy products as the company itself doesn’t produce the products
- Mistakes of the third party company over your product will be at your cost. If defected products release to market, your brand will be destroyed even the responsibility is with the outsourced company
What are Outsourcing and Offshoring?
Offshoring is the concept of companies conducts business activities outside of their origin country. This is very famous nowadays to gain from competitive advantage.
So, as explained earlier outsourcing is using a third-party company to carry the business activities.
What is Offshore Vs Outsourcing?
A company can conduct its business outside the origin country by hiring a third party company. Here conducting the business outside the origin country become “Offshoring” and using a third-party company to carry out the business become the “Outsourcing”. Together this process becomes offshore outsourcing.
What are the Examples of Offshore Outsourcing?
The best example of offshoring is Nike. The leading producer in footwear, apparel and accessories. Nike uses offshoring outsourcing for it’s all the activities to the different parties in the world while only focusing on their core activity. Nike uses their all available resources for Nike products designing. From the production, transportation to distribution all the logistics activities are handled by the offshoring companies. Nike’s headquarter is in America, offshoring companies are in more than 40 countries including Vietnam, Sri Lanka and China.
Apple Inc has the best supply chain and leading the smartphone market. Apple’s headquarters is in America. Yet they have offshoring production plants in China.