Every firm has to make important decisions regarding the production process of a product. Different firms have distinctive production strategies and the main goal is to maximize efficiency as well as financial growth. One important decision that every firm needs to make is to either outsource or insource the production of a product, or parts of a product. Outsourcing and insourcing are techniques of dispersing work among alternative departments or companies for strategic reasons.
When production is within a company’s own operational infrastructure, it is known as insourcing while outsourcing uses companies not affiliated with it to carry out the production.
The management decisions of a company are affected by the two methods due to resource and cost variances.
Small firms and large firms have different perspectives of ‘The Make or Buy Decision’. The two …show more content…
Firms should weigh the advantages and disadvantages of these methods and apply the technique suitable for the respective firm.
Outsourcing from other firms may have certain drawbacks but it can be a key benefit for small firms. Whereas in-house production can be a boon for large firms as it does not depend on any supplier but it can be a bane for small firms due to lack of resources. On the other hand standard inputs are usually outsourced due to economies of scale and tailor made inputs are made in-house due to asset specificity.
According to my views, both decisions depend on the type of market and firm size. It is advisable for small firms to outsource production, as it is cheaper and would benefit them in many ways and a large firm should make all the components in- house as they acquire the necessary resources required for the production of any input for an output. Henceforth, the choice should be made after weighing in the company’s goals, resources and overall targeted
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Outsourcing simply means acquiring services from an external organization instead of using internal resources (Butler, 2000). By using outsourced resources, organizations can gain a competitive advantage by utilizing contingent staff to accomplish strategic goals without incurring the fixed overhead. By focusing on the leading edge and highly specialized skill sets, outsourcing providers can often offer higher quality services, or at a lower price than the client organization. Typical reasons for outsourcing go beyond simple contingent staffing. Outsourcing providers are able to maintain economies of scale with regard to specialization (...
Offshoring or offshore outsourcing is the practice of a company or a firm hiring or contracting in utilizing the services, skills or labor of the personnel from an outsourcing service provider that specializes in the need that they are looking for such as develop systems, customer service or even write code either from a developing or under developed countries, in their efforts to lower their operational costs and improve their service efficiencies and quality of their products. The former company is called ‘the Outsourcer or the Client’ who pays the money for the services obtained and the later company is called ‘the Outsourcee’ for providing the services to the outsourcer.
Outsourcing is a complicated and a multifaceted subject that involves a “business[’s] purchase of parts or labor from another company rather than maintaining a sufficient enough number of its own employees to do the same work in the country where the company is already based” ("Outsourcing"). The first practice of outsourcing was in medieval times when “nation-states called in soldiers-for-hire to help their own military forces during ongoing conflicts” ("Outsourcing"). Many think of outsourcing as a one way trade of production facilities moving outside of a companies locale but in actuality it is a two way trade that also involves companies from other areas moving their factories to local areas where conditions are beneficial for the specific business. Outsourcing has evolved but the main idea has remained the same. The recent increase in outsourcing “was initiated by Wall Street pressures on corporations . . . . for increased profits . . . in the production of goods and services marketed in the U.S."(Roberts).
In many cases outsourcing has proven to be beneficial for businesses. It can help a business’s management by allowing executives to focus on the core structure of the firm rather than every specific element. Production, manufacturing, or additional servic...
Outsourcing is obtaining goods or services from a foreign supplier in place of going in the country for these things. There are many debated effects of outsourcing on the economy, and there are several pros and cons to this practice. Even though there are many pros, the overall economy of America would be better off with minimal outsourcing.
Usually the firms to which the activities are outsourced are specialized in their area of work and so the parent firm gets the advantage of getting the work done through competent employees. Therefore, outsourcing gives competitive advantage to the companies which can be easily sustained by them without much effort.
Outsourcing occurs when products or services are obtained by an outside supplier (Vonderembse & White, 2013). Companies may decide to outsource if it can be obtained less expensively due to specialization or the other company may have proprietary technology that gives them a competitive advantage (Vonderembse & White, 2013). This paper will analyze trade-offs for productivity improvements, discuss both the advantages and disadvantages of global sourcing versus producing in the United States, recommend a low labor cost country based on inputs, trade-offs and global advantages and give an example of a product of the specific country.
Outsourcing manufacturing services to a network of suppliers can provide organizations the ability to adjust the production capability upward or downward, at a lower cost, when trying to match the demand conditions. Outsourcing can also decrease the product design cycle time
Outsourcing is when a company or business decides to contract part of their services that they do not do well to an outside company. There is two types of outsourcing offshoring and nearshoring. Offshoring is where a company outsources abroad and, nearshoring is outsourcing within the home country. The reasons that a company decides to outsource varies from company to company but, the most common ones are cost reduction, increasing globalization, growth , tax incentives, government support and access to new markets. However there are some key challenges that come with offshoring and those key challenges are quality and labor retention. ( Bacon, 2007 p 38-39). Asian outsourcing began as early as the 1960’s (Espana 2013 p 3). Some people argue that offshoring is good for the economy even though it’s a well know fact that offshoring has a negative effect on the economy, there is wage differences and the unemployment rate increase.
In light of recent growth of domestic and foreign countries outsourcing and off shoring over seas, companies been taken advantage of the cheap labor cost for outsourcing and off shoring manufacturing. Competitive business investing in domestic and foreign manufacturing have affects every part of the business industries from design, software development, finances and logistic management, i.e., customer and sales. Nevertheless, outsourcing been praised by businesses for outcomes of cost-effectiveness, efficient, productive and strategic, but damned as malicious, because of companies’ greediness, detrimental, and brutal in the public eyes.
The competitive advantage that can be gained by the companies through IS/IT outsourcing is Improved business processes. IT outsourcing an identification method and rigor of IT resources that can help the business run smoothly. It can control the development of the project budget and expenditures. It also can promote information technology investment proposals from outside and provide skilled individuals in managing IT resources available in the company. Through these companies are able to provide appropriate information and report to the company. This can give competitive advantage to the company. For example, expenditures, progress, and issues the company can be viewed and controlled.
When the company goes for in-house producing, the products must incur all the costs and expenses that are related to the products. On the other hand, if the company decided to go for the outsourcing the purchased product must include all the expenses up till the purchased products are received and stored. Multiple opinions are need to compare either the qualitative analysis, but the quantities aspect is
Making business decisions involves choosing between alternative courses of action. Many factors affect business decisions, yet analysis typically focuses on finding the alternative that offers the highest return on investment or the greatest reduction in costs. Some decisions are based on little more than an intuitive understanding of the situation because available information is too limited to allow a more systematic analysis. In other cases, intangible factors such as convenience, prestige, and environmental considerations are more important than strictly quantitative factors. In all situations, managers can reach a sounder decision if they identify the consequences of alternative choices in financial terms. This unit
Therefore, to achieve this objective, managers have to make choices in decision-making, which is the process of selecting a course of action from two or more alternatives (Weihrich & Koontz; 1994, 199). A sound decision making requires extensive knowledge of economic theory and the tools of economic analysis, that are directly related in the process of decision-making. Since managerial economics is concerned with such economic theories and tools of analysis, it is very relevant to the managerial decision-making process.