When is Outsourcing a good idea?

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When is outsourcing a good idea? Managers need to decide and there are a few things that they need to consider to make that decision.

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Management needs to ask themselves, when is outsourcing a good idea.  There are a few things that managers need to consider to make that decision.

What is outsourcing?

For product outsourcing you may be asking a third party to produce or procure either all or part of what you are selling.          

For services outsourcing, or indeed specific elements within a business such as I.T., it may be a core element of the service you provide.

This is essentially a transfer of your IP or business function to another party for a price.

Big Risks?

On the one hand managers will need to weigh up the risks, these may be:

  • Quality.  This is a big one – either in a material sense or in the way in which 3rd parties may provide services.  Even with direct SOPs or instruction can you be sure this will be consistently good?
  • Potential time zone issues.  Can you speak to your outsource partner during your working hours?  What about your customers?
  • No longer making or serving Customers ‘in house’ could diminish the product appreciation.
  • Time to supply – whether a service or product if this increases or is poorer that your competitors this could leave you at a disadvantage.
  • If there’s a transition period between in house and outsourcing this may adversely affect your customer base.
  • May be ‘politically’ sensitive.  If outsourcing to another country or region you may see negatively publicity on such a move, if it affects jobs within your home area or country.
  • Competitors may use it as an excuse to smear your brand.
  • Your ‘trade secrets’ would be known to the outsourcing company
  • Depending on your contract any additional costs would likely be payable
  • Reliance on the outsourcing company and their stability
  • Disruption may be out of your control

What are the advantages?

If you can feel comfortable enough doing so and if you can do enough due diligence there are distinct advantages.

  • If outsourcing within the same country you can take resolve disputes using the same system of law.
  • Outsourcing within your own country, customers may view as supporting the local industry.
  • Cost savings, if done right, can be significant.
  • No need for the purchase of sites, equipment and training of staff
  • Lower risk

There are horror stories related to outsourcing, but it doesn’t have to be that way.  If a company correctly provides a good RFP (or RFT – Request for Tender) then all parties should be in good position.

The proposal should include things like:

What you actually need, summarised. Ensure to include all functions you need to be included in the proposal.

The hard data – so expected volumes of work and when you expect there to be peaks and troughs.

An expected format for the reply – companies need to be able to compare apples to apples.

Ensure that who you send to offer the right functions and are of a capable size. Some companies may offer low to win your business but may not be able to handle within expected parameters.

Set a time limit to expect replies, but make it reasonable enough.

What if I receive a request like this?

If you’re on the receiving end of an RFP/RFT then you need to make sure you have enough information to be able to accurately cost a tender.  You need to assess if you have the capacity to handle the business and the expertise.  There’s no point in wasting time on a proposal if you are not capable enough to handle this sort of business.

If you’re not the correct sort of business to handle the request, consider making a suggestion on where that company may go to.

On the other hand, you may be exactly in the right position to take it on, in which case you should ensure you have enough information.  The right information early enough and the right costing structure will mean greater success.


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