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Outsourcing / Offshoring and Insourcing


Outsourcing is a procurement process where the buying organisation entrusts the delivery of a product or service to a third party.

 

Offshoring is the relocation of a business process from one country to another.

 

Insourcing is where an organisation uses its own resources and people to accomplish a task rather outsourcing.

 

Outsourcing may be considered following a skills analysis or business restructure if a company does not have the required skills or technical expertise to conduct a particular function, project or make a product. Outsourcing certain tasks enables an organisation to scale up or down relative to demand without the permanent associated overheads.

 

Risks associated with outsourcing are vast and it is essential that the procurement team conduct due diligence, supplier evaluation and appraisal prior to finalising any agreement. Areas such as Intellectual Property should be managed closely as well as quality to protect the buying organisation.

Whilst outsourcing is renowned for reducing the prices that are paid, often in relation to working with a low-cost country, the total cost of ownership of the outsourced procurement should be closely monitored.

Offshoring, moving a business process and operating it out of a foreign location is often considered where the manufacturing processes for example may be cheaper or the level of expertise higher. Offshoring involves higher levels of control by the organisation as they are still in control of the processes, just managing them from another country.

Both outsourcing and offshoring can provide many benefits such as improving the economies of the countries in which the project is being run.

Insourcing establishes shared service centres within the organisation and groups together a function such as finance from different locations into one group which offers cost savings, standardised processes, streamlining of projects and reporting and efficiency benefits with resources being relocated to one location.

CIPS Procurement Content

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