10 Types of Outsourcing You Should Know
Outsourcing can help you in a number of situations from keeping costs in check to propelling your business forward.
Unfortunately are many only thinking about the most traditional forms when talking about outsourcing, but actually is there many different forms of outsourcing, and to use outsourcing in the most efficient way is it necessary to know about the different forms of outsourcing and how they can benefit you.
Business Process Outsourcing
This is probably the most common type of outsourcing and the one many associate with outsourcing. Business Process outsourcing is when you contract a part or your entire business process to a third party. Very often it is repetitive tasks that requires limited skills as customer support or administrative tasks as bookkeeping.
Some typical examples of business process outsourcing are
- The hiring of a virtual assistant by a realtor to schedule client appointments and answer e-mails from clients
- Verizon and Sprint and many other telecommunication companies of hire external companies to take care of technical support or billing support.
- Lead generation is often outsourced by both small and larger companies to telesales companies that have a small army of phoners to cold call potential customers to initialize a sales process.
Instead of outsourcing repetitive tasks that don’t requires complex skills, you can also outsource tasks that is too complex for entrepreneurs or small teams. Out where the learning curve is so high that it will not make economical sense to do them in-house. They can also require a license to do and in some cases hiring somebody locally might just be too expensive due too few suppliers. t them a lot due to scarce demand.
This are the cases where in can be a financial sound decision to look at professional outsourcing. You can save on costs while you get high-quality talent working for you.
Examples of how professional outsourcing works
- The typical example is to hire Accountants and bookkeepers to help with the annual annual tax filing and income statements.
- Some hire CAD operators and engineers to do building layout, the floor plans or to do mechanical designs.
- Traditionally has businesses outsources marketing to professionals who had the knowledge to take care of their promotions and develop their marketing strategies better than they could do themselves.
IT outsourcing is probably one of the most common know outsourcing types. Particulary when it comes to offshoring where it is outsourced to another country. The term covers over that you contract technology related services and/or resources to a third party. It can either be the total of your information technology business functions or a part or certain functions. All businesses and organizations from the entrepreneur to the big multinational has IT needs and have to deal with technology at some level.
Example of IT outsourcing
- Alibaba had trouble finding developers locally at an early stage so they outsourced it to the USA.
- Slack outsourced the development of the interface to their platform to a software development company in Canada.
- Many Telecommunication companies have outsourced IT infrastructure projects and maintaince to both India and the Philippines as a way to gain higher capacity and offer better services.
Multisourcing can be used in any business, but it is probably most popular when it comes to outsourcing IT services. As the names it means that a multiple of functions are outsourced. Typical IT services combined with other business functions are outsourced to 3rd party service providers.
Multisourcing can if it is done successful form the best-of-breed teams to achieve your business goals. It makes it possible for the business to create strong partnerships with other providers that supplement it’s own strengths to create a stronger outcome than it could otherwise have crated by itself.
Do work successfully with this type of outsourcing it is necessary to have worked with your own strategy so know precisely where the outsourcing benefits you in your network and relationships.
Setting up the production of physical product can be both costly and time consuming increasing both risk and extending the time-to-market. Besides of that can the payment to factory workers be massive plus it will be necessary to tie up a lot of capital in infrastructure and manufacturing equipment.
Therefore it can make perfect sense to outsource the manufacturing of your products. Particular if the manufacturing process itself doesn’t give you a competitive edge. By outsourcing do you reduce the risk, the time-to-market, reduce your cost, and free capital that can be used for markeing and sales, product development and other functions that can give you a competitive edge.
Manufacturing outsourcing examples
- Even when Apple had grown to the world’s producer of smartphones, the manufacturing was stil outsourced to China, so Apple could concentrate on development and marketing.
- A lot of fashion companies like H&M and Zara contract their production to clothing factories in Bangladesh to produce their products for the global market.
- A company like Ikea has outsourced the production of their furniture to countries as China or Ukraine to keep the costs down and the profitability up
This is when a part of a company or organization business process or production process is outsourced. It can be a specific task or procedure. Particular in the industry it has become common to outsource certain tasks or processes to an external provider that has specialized in that specific service.
This can be a retail service that has outsourced their delivery to an external company, and particular their international shipping. The contracts for this type of offshore outsourcing are often very complex as they includes at lot of details regarding the service as timelines, costs and customer contacts.
Process-specific outsourcing gives businesses and organizations not only the option to cut their costs, but also free up resources like time to focus on core functions thus making them more efficient.
Types of process outsourcing
- Knowledge process outsourcing (KPO). This type is often use if the company doesn’t have the necessary knowledge internally, or if they internal resources need to focus on something else. Examples can be research or dataanalysis.
- Recruitment process outsourcing (RPO). Recruitment agencies are often used for recruiting new employees from determine requirements for the new employee, management of job postings, sorting applications and evaluating prospects.
- Legal process outsourcing (LPO). Many companies chose to outsource all legalities including litigation and regulatory compliances to an external law firm.
Sometimes a company or organization can end up with so many projects that it can be a problem to manage them all and give each project the focus and time that it requires or deserves, leading to poor quality of the output of each project. It makes sense to outsource projects in such cases to an external service provider.
Even through the most common reason to outsource projects are the lack of available people to do the project or finish it, but it can also because the company or organization lacks the necessary skills in-house.
What projects can be outsourced
- Legal firms can hire contract attorneys when they have a high workload that is too much for their in-house lawyers.
- Promotions and advertisements can be contracted out to e.g. event planners or external agencies.
Offshoring or offshore outsourcing just means that you outsource a part of your business process to another country, which often is done as a strategy to lower your labour costs, as there will be countries that offer a significant lower cost to perform a certain task. But it might not always be just because of lower wages, but also in cases where it is hard to find locals with the necessary qualifications. In some cases it can also be a wish of spreading the production risk or to enter a foreign market.
Offshoring can also be used in cases where local regulation prohibit local production or makes it very expensive to produce locally.
Examples of offshore outsourcing
- Amazon has e.g. offshored their customer service and logistics to the Philippines
- Cisco has offshored their IT-services to India and the Philippines in ordr to offer 24/7 technical support.
- American Express offshored their back office to India in order to provide extensive support to their clients.
Offshoring is probably the best known strategy from the media, but some are doing just the opposite and bring offshored activities back locally. This process is known as onshoring (or reshoring), and can best be described as outsourced tasks being brought back to the same country as where you have your headquarters.
There can be several reasons for onshoring. It can be advantages as having similar or identical working culture or time zones. It can be harder to find a direct advantage with it comes to e.g. wage costs as they typical will be the same as the in-house staff.
Other reasons for bringing back locally can be better quality, easier exchange of knowledge and communication. Quality control becomes easier, no reason for custom decarences and lower transport costs.
Nearshoring is kind of the middle ground between offshoring and reshoring. If the tasks have been outsourced to a far-away country, you can choose to move it to a country closer to you – e.g. from another continent to the same continent. One of the main reasons for the move is to improve the service by reducing the time used for shipping and time delays that inevitable will arise when you outsource to a far-away country, but at the same time you will be able to getting lower costs by moving it to a lower costs country.
You can say that you try to optimize the benefits of reshoring and offshoring, while you try to reduce the risks of the two.