Outsourcing manufacturing - pros and cons



Outsourcing manufacturing - pros and cons

Introduction

In an increasingly competitive business growth depends on the effective management of assets, including by the maximum concentration of resources on the core business of the organization. However, as a general rule, any organization burdened non-core, but no less important for its operation services: IT, Accounting, Legal, etc. the important question for companies lies at how not to be sprayed at all and, at the same time, successfully survive and develop? The answer to this is to use the elimination of non-core business functions to outsourcing, which literally means using other people's resources. Outsourcing is growing in popularity and is firmly entrenched in the minds of the international business community (Schniederjans, et.al, 2005). But as you know, the coin has two sides. Therefore this paper aims to analyze the pros and cons of outsourcing in context of manufacturing firms.

Outsourcing

Outsourcing is a term used in economics and refers to the outsourcing of services, which were originally provided in-house, to a third party. These services can be used in different functional areas, as well as large, complex tasks are connected. In any case, the specific conditions defined by the outsourcing company and are contractually regulated. The main objective of outsourcing is a reduction of business costs. Moreover, mostly the focus is on the central corporate activity and objectives to be met and to increase efficiency in the internal work processes (McIvor, 2005). In business practice, this term is used when placing the order for a long-term from other businesses or services required for the transfer of certain production functions to a third-party company.

It should be noted the similarity, and sometimes compatibility of terms such as outsourcing and subcontracting. Outsourcing - is basically sound and long business relationship with the customer by the contractor on the basis of contractual agreements. In this case, the contractor adapts its production and technological means or scientific, technical and intellectual potential in the interests of the customer for payment determined by the current value of services, and not share in the profits (Schniederjans, et.al, 2005). While subcontracting, as a special case of outsourcing involves limited business relationships based on contractual relations in the framework of the implementation of an order.

Outsourcing production may offer advantages in the case of a new product start-up, provided that there are suppliers who can manufacture items according to your specifications. Ownership of the new product can be documented in contractual agreements. It is always better to have more than one supplier, if possible, so as to meet the demand. However, the use of multiple vendors can cause problems in terms of consistent quality. Outsourcing also allows you not to invest overmuch in designing your own infrastructure (Weidenbaum, 2004). Your market research and business plan should give you a general idea of sales and selling price, if any, from which you can calculate a breakeven compared to the initial investment that you done when you have opted for ...