When it comes to outsourcing, companies take different approaches depending on their goals. Some focus on increasing efficiency, others on reducing the cost of their products or services. Whatever the reason, outsourcing is becoming more popular than ever because of its many benefits. In this article, you will learn what outsourcing is and why many companies outsource certain operations, especially on the logistics side of operations.
What is outsourcing?
In business, outsourcing is the practice of contracting an outside company or organization to provide a product or service that the company itself would otherwise produce. It has been linked to job shifts overseas in recent years, although this is not always the case. Outsourcing can be done in other companies in the same country and it is not always for tax reasons. For example, one of the most well-known forms of outsourcing is that of Amazon Fulfilled by Amazon program. Essentially, online retailers will outsource their logistics needs to Amazon to focus on their core business rather than handling packaging, deliveries, and refunds. It is only a form of outsourcing.
Many businesses find that they need to use sophisticated technology to take their business to new heights. However, this is often easier said than done. For example, if a company is looking for a fully equipped remote IT support service, they could outsource this to a company that fully understands this topic instead of setting up new technical departments and hiring a bunch of new employees. In this case, choosing a company with experience in this industry makes financial and practical sense as they want it to be done by a company that understands the task. In light of the above, what are the main benefits of outsourcing certain aspects of a business?
Companies can focus on your core business
One of the main reasons many companies outsource is to focus on the things that make them money. Looking at the previous Amazon example, you can see the benefits an online retailer has when they outsource their logistics needs to another company (especially one as large as Amazon). Logistics operations are extremely complex, time consuming and expensive if poorly managed. Therefore, this leaves only two options for most companies:
1. Hire and train new employees
While hiring new staff can be profitable for large multinationals, many SMEs simply cannot afford to invest the time and money in such a task.
The technology is accessible without investment
Operations such as supply chain management and logistics often require significant investments in specialized technology to facilitate smooth and precise operations. Just as you choose not to hire or train new staff, many small businesses lack the resources to invest in the technology needed to perform these complex tasks. Additionally, logistics often only make up a certain percentage of business operations, so it is impossible to direct resources to technology that you will only use for a certain period of time. Outsourcing that part of your business to a dedicated business involves paying a fair amount to run that part of your business and invest in the technology necessary for its success.
It can improve customer satisfaction
Continuing the example of e-commerce, it is clear that outsourcing the delivery of goods facilitates a higher level of customer satisfaction. For example, no matter how much you strive to please customers, it is inevitable that some items will be defective (especially if you have a high income). In these cases, it is good practice to simply ask your customer to return the product and provide them with a replacement or refund. Even though it sounds simple, it’s basically a loss-making activity that you’d rather avoid and focus on the profitable side of the business instead. If this e-commerce company had given this task to a logistics company, they would be responsible for returns and replacements, allowing the company to focus on its core business while maintaining a satisfied customer base.
While this point explicitly covers the logistics aspect of things, it also applies to other industries. By not having to deliver products, a business will immediately eliminate the myriad of responsibilities that come with transposition, from accidents to lost packages and more. However, this also applies to other industries. For example, a business may need custom software to perform specific tasks. By outsourcing to another company, they don’t have to worry about intellectual property infringement as this will be covered by the outsourced software vendor.
Outsourcing can be of huge benefit to businesses. Businesses can save money by outsourcing manufacturing, marketing, logistics, and even accounting. It allows businesses to focus on their core competencies and devote all of their efforts to the profitable parts of their business.