Professional Documents
Culture Documents
The subject of outsourcing is an interesting one and not without controversy. The advantages and
disadvantages of outsourcing have made for a lively debate among many business owners. By
definition, outsourcing is when a company opts to hire a third party to perform a service(s) or
create goods that were conventionally done in-house by the employees of the company. Some have
argued that the benefits of outsourcing are numerous including promoting the idea of a global
economic free market by creating business incentives for those companies that wish to allocate
assets where they have the most favorable effect on their bottom line. Others in the business
Advantages of outsourcing
That said, the above does not negate the benefits that can be enjoyed by a well thought out, strategic
1. Optimized efficiency: The outsourced vendor will usually be a specialist in the services that an
outsourcing company requires. This is both in expertise and technology. This means that mundane
time-consuming tasks like data entry and customer care which play a supporting role to a business
can be executed by a third party with greater efficiency, higher service standard and in many cases
at lower cost.
2. Focusing on core competencies other than supporting roles Other than optimized efficiency,
core purposes as opposed to losing energy and resource in managing supporting roles in-house
3. Shaving cost One of the primary advantages of outsourcing is the fact that it invariably cuts cost
and headcount. The cost-time burden of recruiting and infrastructure falls to the outsourced vendor.
This reduces the cost and time spent on that function when it was done in-house
4. Risk sharing the make and break of an outsourcing company is mostly dependent on risk
elements. By shifting the responsibilities of a company function to a third party; it is because the
outsourced vendor is highly specialized in the task. They are better positioned and equipped to
mitigate risks effectively than the outsourcing company. There is a high probability of success in
having an outsourced vendor as their expertise in the subject is one of their major selling points
5. Competitive edge When well executed, outsourcing can provide a company with a competitive
business edge over rivals. By merely leveraging knowledge and skill that is in your supply chain
albeit offshore.
6. Operational expertise – is achieved by accessing operational best practices from the supplier
company that would be too difficult or too time consuming to develop in-house;
7. Access to talent – is achieved through access to a larger talent pool and a sustainable source of
services and technology whereby the risk of providing the excess capacity is borne by the supplier
changes that cannot be achieved by the buyer company alone. The supplier of outsourced services
10. Enhance capacity for innovation – is achieved when the buyer of outsourced services uses
knowledge provided by the supplier of the services to supplement limited in-house capacity for
product innovation;
11. Reduced time to market – is achieved through acceleration of the development or production
(of a product) through the additional capability brought by the supplier of outsourced services;
12. Co-modification – is achieved when a wide range of relatively smaller businesses are able to
get access to services previously only available to large corporations. The current trend in
standardizing business processes (e.g. IT Service provision and software application development)
13. Risk management – is achieved through partnering with a supplier of outsourced services, a
14. Venture Capital – is achieved when the outsourcing relationship is between countries that
match government funds venture capital with private venture capital for startups.
15. Tax Benefit – is achieved when the outsourcing relationship involves a country that offers tax
incentives to move manufacturing operations to counter high corporate taxes within another
country.
Drawbacks of outsourcing
For all the advantages of outsourcing that a company can enjoy, there are always some
disadvantages of outsourcing that are bound to be experienced if not well executed and can be
Businesses are known for patents, valuable formulas and technology as well as market intelligence
and bottom lines. These are sensitive and valuable pieces of information. By outsourcing, it means
that these business secrets may be shared with a third-party agency if it necessitates the carrying
2. Hidden cost
Although outsourcing usually serves to reduce cost, there can be an unanticipated hidden cost that
arises as a result of geographical boundaries that may pose a serious threat in arriving at a cost-
effective agreement
3. Service delivery
In the case of an outsourced vendor that has multiple clients, the service delivery standard can
suffer and fall below expectation. This is because a vendor may be spread out too thin catering to
expertise needs of numerous companies and therefore fails to appropriate the needed focus in your
organisation's task.
This can be a challenge that comes about if the agency paired with is not the right fit for your
organisation and may lead to delayed deliveries and quality output that is below par. This can also
mean drastic results to a company's reputation with its consumers and may be costly trying to
salvage that reputation. Should this happen, it beats the purpose of outsourcing and the company
is probably better off retaining an all in-house model. All factors considered.
5. Instability
One of the fears of outsourcing is the instability it would cause an organisation should the
outsourced vendor go out of business. There is always an element of inflexibility on the off chance
that a contract between the two parties may prove too rigid. Making the necessary adjustment can
be quite tricky and a lengthy process. Most commonly outsourced functions of an organisation
Outsourcing example There are numerous success stories of organizations that have outsourced
one or more of the above-listed functions. A good example is IKEA who have benefited in
outsourcing IT services to an expert agency. Since 2013, IKEA in a bid to streamlines their cash
6. Another biggest disadvantage of outsourcing is the risk of losing sensitive data and the loss of
7. Losing management control of business functions mean that you may no longer be able to
8. Problems with quality can arise if the outsourcing provider doesn't have proper processes and/
9. Since the outsourcing provider may work with other customers, they might not give 100%
time and attention to a single company. This may result in delays and inaccuracies in the work
output.
10. Not understanding the culture of the outsourcing provider and the location where you
11. If important functions are being outsourced, an organization is mightily dependent on the
outsourcing provider. Risks such as bankruptcy and financial loss cannot be controlled.
12. Hidden costs and legal problems may arise if the outsourcing terms and conditions are not
clearly defined.
Question #2
Due to the ever-changing dynamics of today's global market place, it is necessary to examine
upcoming future trends that may impact businesses. Supply chains are a valuable component of
all business planning, and hence, they must be continuously monitored. This paper reflects on the
views and contributions of various authors writing on the crucial issue of managing supply chains.
management strategies, agility, and incentive systems in supply chains are addressed.
the volume increases exponentially, the complexity of the demand for each business and supplier
is increased, thus the need to customize the product from these systems. Automated technologies
management limit the need for constant human intervention through automated sourcing,
procuring, and invoicing processes. With savings in time, even non-procurement professionals can
handle the process, and help procurement professionals utilize their time in procurement strategy
making. Requisition approvals, automated MRO re-orders, supplier profile maintenance, and
purchase-to-pay (P2P) are among the most automated processes in digital procurement.
In recent years, big data is driving more predictive analysis and forecasting. Predictive analysis
provides the ability to predict the outcome of a particular action or market movement in a highly
accurate way. Large data will become a larger part of the procurement, help to promote
procurement decisions, form a process, and select the right procurement solution. Procurement no
longer requires someone to bang their fists on the table and demand a better deal from suppliers
Procurement can now be founded on intelligent forecasting, understanding the market trends and
knowing when is the right time to take risks and seize opportunities.
Mobile telephony has become an important part of the daily lives of many emerging market
consumers, and payment on mobile devices has become the norm. Consumers use mobile payment
systems in these markets far beyond the adoption of similar systems in Europe, North America
and china. Most consumers in emerging markets have better access to mobile devices than to banks
Artificial Intelligence (or AI) can quickly help solve some of the major difficulties faced by the
whole industry. It can identify recently developed markets, manage supply chain risks, track
exchange rate volatility and even find the ideal value without the quality being affected. Making
use of big data is another area for the purchasing executives to be concerned about. Artificial
intelligence can be accomplished by spending analysis software, which has helped the purchasing
Collaboration and cooperation between the company and its suppliers will improve or create
procurement services and other services, shifting the focus to value, quality and teamwork.
Collaboration is a great way for companies to get the best value, and core purchasing skills are still
There is an overarching need above all changing trends and requirements for procurement
professionals; that need is to understand the product. With this knowledge and expertise, in
addition to the procurement and supply chain management skills, delivering the product on time
7. Demand-Driven Planning
Rather than planning solely based on production capacity and distribution capabilities, the supply
chain is now taking a more customer-focused approach. This enables costs to be kept low without
the sacrifice of efficiency in operations. Taking into account varying demand at different periods
and the impact of lead times, supply can be optimized to ensure delivery on time and within budget.
7. Globalisation
Globalization is not a new trend by any stretch, but it still deserves a mention. Why? Because is
still an evolving trend and the impact it will have on supply in 2016 will not be the same as in
previous years. It is important for organizations to be considering both outsourcing and exporting
on a global level in order to keep up with the changing and growing supply chain. Global supply
is becoming increasingly more popular, expected even, as those who were lagging behind begin
to pick up slack. Those who work with international suppliers no longer have an advantage and
Fuel costs are one of the key drivers of cost increases at the moment. This is leading to logistics
providers having to increase prices, while procurement professionals are trying to negotiate lower
costs. Procurement staff will need to look elsewhere to reduce costs as fuel prices are not set to
decrease or even stand still anytime soon. An area where costs can be reduced is customs.
Organizations are often overcharged for import duties and taxes; there are often much more cost-
9. Increased Outsourcing
When seeking to globalise and lower costs, outsourcing is the way many organisations are going.
It enables them to extend their network of expertise in particular areas such as logistics and
Drive simplicity and automation that can help procurement create advantage for their organizations
today. The future of procurement is all about intelligence. Cognitive technologies are the key to
unlocking its potential. Investing in predictive, automatic, and secure technologies can operate
with complex and fragmented data, leverage supplier data, and provide accessible analytics on
multiple devices. Digitization can help procurement gain handle on advanced vendor-managed
inventory processes.
Question #3
In own perspective, which areas in purchasing and supplies sector in Kenya tht require
improvement
https://www.standardmedia.co.ke/article/1144029315/reasons-for-business-process-outsourcing
http://lanxafrica.co.ke/blog/hr-outsourcing-take-business-next-level/
https://profitworks.ca/blog/other-blog-articles/107-disadvantages-of-outsourcing.html
https://sipmm.edu.sg/top-five-emerging-trends-procurement/