106 Benefits and problems of outsourcing

Benefits and problems of outsourcing

The main benefits identified by organisations that have adopted outsourcing are the freeing of management time and improvement in organisational focus to concentrate on core business operations. Outsourcing also allows access to worldclass capabilities and makes capital funds available for core activities. Other benefits include reduced staff costs, increased flexibility, reduction in staff management problems and improved cost certainty.

Outsourcing is not, however, without its problems. It can be a while before a firm begins to benefit from any savings and in some cases, the whole process is cost neutral. Some problems associated with outsourcing are as follows:

1.  Overdependence on suppliers

2.  Lack of supplier flexibility

3.  Communication with suppliers

4.  Coordinating different suppliers

5.  Lack of management skills to control suppliers

6.  Quality of service at suppliers

7.  Shallow expertise at suppliers

8.  Poor staff training at suppliers

9.  Unrealistic expectations of outsourcing providers due to over-promising at the negotiations stage

10. Divergent interests of the firm and suppliers

11. Lack of commitment to the firm or industry

12. Cultural mismatches between firm and supplier organisations

13. Cost escalation

 

 

  Reading
Please read ‘outsourcing’ on pages 115 – 129 in Chapter 4 from your textbook Procurement Principles and Management, 10th edn, England: Prentice-Hall, Pearson Education Limited by Baily, P, Farmer, D, Crocker, B, Jessop, D and Jones, D (2008).

 

 

 

 

 

Activity 5.5
Question to activity 5.5
Suggested answer to activity 5.5

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