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There are four types of outsourcing services: professional, manufacturing, process-specific and operational. Each of these services have grown in popularity as more businesses look to reduce their overhead costs while maintaining the same level of output or support. There are risks and benefits to outsourcing that must be considered when looking at different types of outsourcing services. The greatest benefit typically is cost reduction, because the company saves in both equipment and labor costs. The largest risks are related to quality and control.
Professional outsourcing services include accounting, legal, purchasing, information technology support and other specialized services. This is the most common area for these types of services, because of the potential cost savings associated with this type of arrangement. The business has access to high quality resources while paying only for services actually provided. This substantially reduces the organization's overhead costs.
Manufacturer outsourcing services usually are quite industry-specific. For example, an automobile manufacturer can have an outsourcing arrangement for the creation and installation of windows in all of their models. This arrangement will have huge implications on the operations but can result in significant cost savings and reduced assembly time. The primary risks with this type of arrangement are related to interruption of the production line and quality issues.
Other outsourcing services can be specific to a unique process or internal procedure. In many cases, it is more cost-effective to have different parts or components manufactured by other companies. This simplifies the assembly process, reducing costs and the total amount of time required to create a complete unit.
This type of outsourcing also is found in other industries. In the service industry, it is quite common to outsource specific aspects of the operation to other companies that specialize in that service. For example, a bakery can outsource the delivery of the final product to a courier company. This contract can provide details on delivery time lines, customer contacts and costs. This type of business arrangement allows each company to focus on its respective strength and improves customer service.
Outsourcing services for operational activities are more common in the manufacturing sector than in other industries. The nature of manufacturing creates opportunities for very specific operational activities to be delegated to outside companies. Machine maintenance and equipment repair can be obtained from outsourcing services that specialize in the specific equipment. Other types of operational activities include cleaning, landscaping, facilities maintenance and property management.
The explanation given by GreenWeaver as being the basis for outsourcing is the reason why a lot of companies are are losing money instead of increasing revenue. The mistake a lot of organizations make when they decide to outsource is their total focus on cost reduction without actually taking time to calculate the TCO (Total Cost of Ownership) of the entire transaction.
A lot of outsourcing transactions open quite a number of unexpected holes for revenue leakages. For example, how many organizations who outsource financial services(Credit card, bill payment etc) actually take time to calculate the TCE (Total cost of Errors) arising from the mistakes made by their vendors? How many pay attention to the cost of rectifying a
simple data entry error in a credit card transaction or mortgage application?
You will find out that organizations commit more money into dealing with complaints arising from a vendor's error than what is assumed to be saved from outsourcing a particular service.
I know that a lot of companies are hiring at home workers. Another area that is ripe for outsourcing is human resources and information technology outsourcing services.
There are companies that are payroll outsourcing services and actually will take over a company’s payroll for them.
Other human resources that are outsourced involve recruiting. Many companies might work with staffing companies when trying to find contractors for project work, or permanent employees for hard to fill positions.
Some companies seek IT outsourcing services because they seek professional management of their computer systems and need an outside company to take care of these functions for the company so that the company could focus on their core business.
Information technology outsourcing services like Cap Gemini will actually supply IT consultants to a company but they also have the capability to take over the entire IT department so that the company does not have to worry about computer crashes and system problems.
I know that many companies look to outsourcing financial services, but they also look to outsource their American call centers by outsourcing these services to India.
There are many companies that hire Indian workers because the costs are so much less. However, there has been a backlash as of late and many American customers have boycotted companies that have outsourced their operations to India.
In order to combat this problem many companies look to home shoring companies like Arise, Working Solutions and VIP Desk to hire contractors to service their client’s call centers from home.
Many of these contractors get paid my call and are usually highly educated stay at home moms that had careers before staying
home with their children.
These types of firms also save companies money because the employee at a call center gets paid whether the phone rings or not, while the contractor only gets paid for the actual calls they took.
In addition, this allows for optimum staffing because at home workers could be deployed at a moment’s notice.
Many companies look to outsource services in order to save money. The most common outsourced services departments are human resources, and accounting.
Outsourcing financial services in quite common and many companies move their entire accounting department overseas in order to save significant amount of money.
For example, DHL Worldwide logistics moved its entire accounting operation to Costa Rica. The reasoning was actually easy to understand when you factor the salary of an American accountant and a Costa Rican accountant.
For example, the typical American accountant might earn, about $60,000 a year with a gross monthly earnings of $5,000.
However, in Costa Rica the salary for the average accountant is only $2,500. If you multiple these savings across the entire department it is easy to see why a company would use offshore outsourcing services.
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