What Is Outsourcing?
The term outsourcing comes from the phrase “outside resourcing”, which originated in 1981. Outsource is an arrangement in which a company contracts a service bureau to be responsible for a planned or existing activity that is or can be done internally. It can sometimes also involve the transfer of employees and/or assets from one firm to another.
Benefits Of Outsource
The benefits of Outsource are as below:
- Low Labor Costs: Lower labor costs can improve a business’ bottom line. Therefore, many outsource to businesses in developing countries where the cost of labor is cheaper.
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- Fewer Regulations: Developing countries often have fewer regulations, which can also reduce the cost of labor and increase productivity.
- Flexibility: When outsourcing, it can help a company stay lean and mean which makes it easier to adapt to changes. They don’t have to spend a lot of money on resources and equipment that may become dated soon so instead, they pass that risk to an outsource firm.
- Reduced Overhead Costs: A company’s overhead cost can be reduced as the outsourcing company uses its own facilities, equipment and personnel to complete the tasks. In theory, it is all possible to engage in massive manufacturing ventures out of a room in your house if you outsource all the manufacturing.
Why Outsourcing Is Important
The reason why outsourcing is important is that it helps cut costs. Not only that, but it also helps companies by providing them with skilled workers and other benefits such as reducing overhead costs, flexible staffing, increasing efficiency, reducing turnaround time and eventually generating more profits.
Types Of Outsourcing
- Professional Outsourcing: Any type of service in a specific professional domain that a person is bringing into a project is subject to professional outsourcing. It could be an accounting firm, a dedicated development team etc. The benefit of professional outsource is that you only have to pay for the service provided.
- Manufacturing Outsourcing: Hiring people outside of your company to assemble parts of, or to build an entire product is known as Manufacturing Outsource. The main reason why companies do this is due to the cut in labor costs.
- Operational Outsourcing: A company outsourcing a specific operation is known as Operational Outsourcing. This helps with things like repairing operations, equipment maintenance, delivery and much more. There are different forms of operational outsourcing such as full, targeted and temporary assistance. While full and temporary models are based on contracts, targeted outsource means hiring a third party that works alongside your in-house team.
- Project-based Outsourcing: Entrusting a project to another company that has the expertise needed to complete said project and deliver the right results is know as Project-based Outsource. It helps save money by limiting the amount of time needed to complete the project as well as provides you with a network of professionals that you can use for projects in the future.
Whatever the type, outsource includes an agreement between a business and a hired team/person, or a business and an outsource provider. The latter is a clever option if you need a dedicated team to work on your project — so you’ll need a professional agency handling the recruitment process.
