Outsourcing has become a hot topic in recent years. You may already be aware that the concept of outsourcing is far from a new idea. As far back as 1776, economist and philosopher Adam Smith addressed the topic is his seminal volume An Inquiry into the Nature and Causes of the Wealth of Nations. He has been quoted as saying “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, it is better to buy it of them.”
In recent years many companies have viewed outsourcing as a business fad or trend to partake in without understanding the true benefits and potential risks that outsourcing can provide their organization. Any manager or executive knows that the effective utilization of organizational resources directly impacts a business’ bottom line. Process improvement, specialization, and task proficiency may not be optimized within your business. If this is the case, you may be able to deliver a better product at a lower cost by outsourcing certain aspects of your business to a firm that can provide these benefits. This enables you to offer your end customer a better product of service and keep your organization focused on what they do best.
For example, if you are located in California and you sell a product primarily in US but do not have the ability to design, manufacture and source materials of the highest quality locally should you settle for what you can do locally and offer your customer a lower quality, higher priced product? Or should you find a company that specializes in the areas you are deficient in, and outsource those functions? That is a business decision you will have to make, however, industry leaders are realizing that everyone wins when companies focus on their core competencies and outsource other functions to a firm who specializes in that area.
Outsourcing non-critical processes to third party firms with more expertise guarantees that your company’s resources are available for critical activities where you do have an expertise. Remember, your partner can supplement your operations and provide additional capacity as needed without the overhead costs your firm would incur if handled on-site. Organizations that outsource often discover that costly infrastructure expenditures are drastically reduced as some functions are outsourced to external locations.
Many successful firms outsource work in order to have their processes delivered by companies with operational expertise in that particular outsourced process. Outsourcing can provide your firm access to exceptional capabilities and infrastructure in terms of the outsourced function. Also, depending on where your firm is located, outsourcing may offer additional incentives both economic and cultural.
Take for example an American firm outsourcing to Canada. Due to the exchange rate, for every dollar an American firm spends in Canada, that firm receives over $1.10 worth of goods and services. Additionally, Canada and the United States share similar cultures and regulatory climates as well as they shares the same aesthetic, quality and core competency values as their American counterparts. The fact that transportation costs and lead times are the same as having a supplier across the other end of state further reflect on the bottom line, and equally quickly. Canada’s cost of labor is lower than the U.S. and Canada has distinctive strategic advantages that firms located elsewhere cannot offer.
Once you assess your business’ strategic needs and begin to select outsourcing vendors, make sure that the firms you consider can accommodate your needs and unique requirements. Outsource correctly and your company will have a competitive advantage over others in your industry.
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