Common outsourcing applications

ACCA P3 考試：Common outsourcing applications

Common outsourcing applications

1. It allows the organisation to focus on its core, value-adding activities without the distraction of having to run support services. Support services can soak up both management time and financial resources and these would usually be better spent concentrating on where the business can use its resources and competences to gain competitive advantages.

2. Cost savings. Usually the organisations to which activities are outsourced specialise in those activities and, therefore, are likely to enjoy economies of scale, whether from the use of machinery or the employment of expertise. There can be additional cost savings if a process is outsourced to a foreign company operating in a cheaper labour area (off-shoring).

3. Cost certainty. An outsourcing contract at a fixed, or closely defined price, shifts much of the financial risk on to the provider. Costs become more predictable.

4. Cost restructuring. For some types of outsourcing such as component manufacturing, there will be lower fixed costs and higher variable costs. If all components are bought in, then these costs are all variable. Had the components been made in-house, there would inevitably have been associated substantial fixed overheads.

5. Access to cutting edge expertise and talent. In technically advanced, fast moving industries, it can be difficult for small companies to develop or make use of new processes. Outsourcing to a specialist company can give access to the latest technologies.

6. Better quality. There can be an immediate improvement in quality if a process is outsourced to a world-class company where the quality is carefully defined in a service level agreement.

7. Risk transference. If a company perceives that one of its processes has high risks, then this can be transferred by outsourcing to another company.

8. Capacity management. For example, it can be difficult for businesses to deal with variable demand: either they run out of capacity (unhappy customers), or have (expensive) unused capacity. Outsourcing to a large company can mitigate this problem.