Question

WK 3-2 Please provide examples for better understanding

discuss some of the pros and cons of outsourcing. Do you think many organizations are experiencing an increase or decrease in their levels of outsourcing? Why?

Answer 1

Deciding whether to insource or outsource a product or service is a critical decision for operations and supply chain managers because it would then define their responsibilities. Regardless of the outcome of that decision, there are several advantages and disadvantages of it which one should consider before deciding which is the best strategy for its decision. Reaching to a decision of insourcing or outsourcing, there are factors to be considered such as the environmental uncertainty, competition of supplier’s market, ability to monitor supplier’s performance, or the relationship of product/service to buying. Aside from these, they must understand the cost issues associated with insourcing versus outsourcing.

INSOURCING		OUTSOURCING
Advantages	Disadvantages	Advantages	Disadvantages
High degree of control	Reduce strategic flexibility	High strategic flexibility	Possibility of choosing a bad supplier
Ability to oversee the entire process	Required high investment	Lower investment risk	Loss of control over the process
Economies of scale and/or scope	Potential suppliers may offer better products or services	Better cash-flow	Communication issues
		Access to state-of-the-art products or services	Increase risk of supply chain disruptions
		Access to a larger talent pool	Quality issues may occur
		Lower labor cost	“hollowing out” of the corporation

Since the advancement of technology, many large organizations have trended in outsourcing, mainly because of the cost associated with insourcing a product or service. The cost of labor to produce a finished good or service is one of the deciding factor for large business entities to outsource.