Outsourcing

What is outsourcing?

Outsourcing is taking an operation, process or function that the procurement function has previously undertaken itself and using a supplier to deliver this instead. Outsourcing is usually used to cut costs and to focus on other core aspects within the organisation, so it can affect a wide range of jobs.

How outsourcing works?

When an organisation uses outsourcing, they use a third-party to conduct the specific tasks on their behalf. The third-party tends to have a different compensation structure, usually at a lower cost, so it does reduce labour expenses with the organisation that has chosen to outsource.

There are three types of outsourcing:

On-shore outsourcing: This is outsourcing of tasks to another organisation in the same area or country. Costs tend to be higher, but organisations can benefit from a skilled workforce with few cultural or linguistic barriers in place. 
Off-shore outsourcing: This is outsourcing of tasks to another organisation based in another country, usually offering skilled labour as a lower cost. 
Near-shore outsourcing: This is outsourcing of tasks to a country nearby with the same language, skills and culture, making communication much easier. 

Advantages and disadvantages of outsourcing

Outsourcing has its advantages and disadvantages, and there’s lots of thing’s organisations must thinking about before making the leap to outsource.

Advantages

Reduced costs

Outsourcing certain operations can be less expensive compared to doing the tasks in house. For examples, if you need more warehouse space to complete a project, it may be cheaper to outsource than expanding the area.

Focus your efforts

Outsourcing tasks can also help you to focus on more important activities, particularly if your organisation has seen a rapid period of growth. It’s also a good option if your need to increase your efficiency and productivity.
Flexibility
 If you have a spike in seasonal demands, outsourcing can be a good option as you can outsource for a limited amount of time once the task is complete, and usually at a lower cost. 

Disadvantages

Lack of control
Outsourcing means you are giving control to another organisation, so there are risks when it comes to standards of service and quality. 
Security
When outsourcing, you’ll need to ensure you have security measures in place to protect any confidential information when it comes to your organisation. 
Employee morale
Outsourcing can decrease your employee’s morale, particularly if they feel like their job is at risk. It’s important to inform your employees about any changes and provide reassurance to them.

Benefits of AI in procurement

AI can bring value to procurement and supply teams to make better decisions using analytics and data-driven insights. It’s able to work through vast amounts of data, meaning it can help teams to uncover cost savings or opportunities that they may be missing.

It also helps to improve manual operations such as reporting, meaning procurement and supply teams can focus their resources on creative and strategic tasks. AI has access to vast amounts of data, meaning it can help teams to identify new suppliers from external data sources like the internet. It can also help to detect patterns of financial instability which could lead to supply chain disruptions, which helps organisation to act and mitigate risks before they occur.

Choosing the rise AI is important and by using it to its full advantage, organisations can gain a competitive edge and drive value throughout the whole supply chain.

Future of outsourcing

Outsourcing is a strategic solution for organisations, reducing operational costs, increase in flexibility and allows teams to focus their efforts. It also helps organisations to tap into the best talents around the globe, without having to hire full-time, typically at a lower cost. So, if organisations are looking for specific skill sets, outsourcing could be a good option, that not only lower costs, but can give a competitive advantage. 

As technology evolves, automation will play a huge part which can lead to savings, as well as increasing communication and collaboration even if organisations are on the other side of the world.