What is Outsourcing?
Outsourcing has been a feature of the business world for hundreds of years and it is simply a typical modernised term for "contracting out". Note that the business or operational function can be outsourced to either a domestic or foreign third party contractor. The key factor here is that the service be performed by an external third party contractor, not simply by a department or division of the same company.
Benefits of outsourcing:
- the acquisition of specialized services required on a limited or temporary basis;
- quick solution to a temporary overload work or task;
- ability to concentrate on the organization's focus on its core competencies;
- potential to save money.
Almost any business or operational function can be outsourced, including:
- warehouse of a manufacturing facility;
- accounting and tax preparation services;
- legal services;
- medical and legal transcription;
- x-ray analysis, blood and urine analysis;
- data entry;
- graphic arts;
- advertising, marketing and telemarketing services;
- research and development;
- manufacturing of component parts;
- manufacturing of finished or complete products.
Domestic Outsourcing
The outsourcing of a business or operational function to a domestic third party contractor. Examples of domestic outsourcing includes:
- contracting the management of the manufacturer's warehouse to a logistics provider (example: WD Media's warehouse being managed by DB Schenker; Intel's warehouse being undertaken by DHL; Entegris' warehouse managed by DB Schenker and Agilent's warehouse being taken care by DHL);
- contracting year-end accounting and tax preparation work to a local accountant or accounting firm;
- contracting document shredding to an outside service that shreds the documents on location in a purpose built truck and then disposal of these shredded documents in a proper manner;
- contracting telemarketing operations to a third party company located in a less costly part of the country;
- contracting the machining or assembling of complex component parts or equipment to a local machine shop or contract manufacturer with specialized equipment or know-hows;
- contracting the manufacture of a completed product to a domestic contract manufacturing company.
Offshore Outsourcing
The outsourcing of a business or operational function to a third party vendor in a foreign country. Examples of an offshore outsourcing include:
- a domestic accounting firm contracts accounting and tax preparation work to a firm located in a foreign country;
- contracting call-centre operations to a foreign country;
- contracting software development to a foreign company.
Off-shoring
The relocation of an entire business process to a foreign country. The business process or function can be performed by the parent company or by a local third party contractor. Off-shoring is similar to outsourcing, but can be performed by a division or subsidiary of the off-shoring company, as well as by a third part entity.
Do note that off-shoring can be referred to either a manufacturing process or a service process. Examples of off-shoring include:
- shifting a manufacturing operation to another country;
- shifting a call-centre operation to another country.
