When it comes to outsourcing, businesses take different approaches based on their goals. Some focus on increasing efficiency, some on lowering the cost of their products or services. whatever the reason may be, outsourcing is becoming more popular than ever due to its many benefits. In this post, you will learn what outsourcing is and why many businesses outsource certain operations, especially on the logistics side of operations.
What Is Outsourcing?
In business, outsourcing is the practice of contracting an external company or organization to provide a product or service that the firm itself would otherwise produce. It has been associated with job moves overseas in recent years, though this is not always the case. Outsourcing can be done in other companies within the same country and isn’t always for fiscal reasons. For example, one of the most famous forms of outsourcing can be seen with Amazon’s Fulfillment by Amazon program. In essence, online retailers will outsource their logistical needs to Amazon to focus on their core business rather than handling packaging, deliveries, and refunds. This is just one form of outsourcing.
Many businesses are finding that they need to use sophisticated technology to scale their business to new heights. However, this is often easier said than done. For instance, if a company is looking for a fully equipped remote IT support service, they might outsource this to a company that understands this topic deeply instead of setting up new technical departments and hiring a raft of new staff. In this instance, choosing a company experienced in this sector makes financial sense and makes practical sense in that they want it done by a business that understands the task. In light of the above, what are some of the biggest benefits of outsourcing certain aspects of a company?
Businesses Can Focus On Your Core Business
One of the primary reasons many businesses outsource is to focus on the things that make them money. By looking at the earlier example of Amazon, you can see the benefits an online retailer has when outsourcing their logistical needs to another company (especially one as far-reaching as Amazon). Logistical operations are hugely complex, time-consuming, and costly if incorrectly handled. Therefore, this leaves only two options for most businesses:
1. Hire and train new staff
2. Outsource
Although hiring new staff may be cost-effective for large multinationals, many SMEs simply cannot afford to invest the time and money in such a task.
Technology Is Accessible Without The Investment
Operations like supply chain management and logistics often require significant investments in specialist technologies to facilitate smooth and accurate operations. Similar to why you choose not to hire and train new staff, many SMEs do not have the resources to invest in the technology needed to perform these complex tasks. Furthermore, logistics is often only a certain percentage of business operations, so directing resources in technology that you will only use a certain amount of the time is unfeasible. Outsourcing this part of your business to a business devoted to it entails paying a fair amount for them to manage this part of your business and invest in the technology required for successful completion.
It Can Improve Customer Satisfaction
Continuing the e-commerce example, 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 make customers happy, it is inevitable that some items will be faulty (especially if you have a high revenue). In these cases, it is good practice to simply ask your customer to return the product and provide them with a replacement or a refund. Even though this sounds straightforward, it is fundamentally a loss-making activity you’d rather avoid and instead focus on the profitable side of the business. If said e-commerce business had outsourced this task to a logistics company, they would be responsible for returns and replacements, thus allowing the business to focus on its core activities while maintaining a happy customer base.
Reduced Liabilities
While this point is aimed explicitly at the logistical side of things, it also applies to other industries. By not having to deliver products, a company will immediately cut out the myriad of liabilities that comes with transposition, from accidents to lost packages, etc. However, this also holds for other industries. For example, a company might need a bespoke piece of software to perform specific tasks. By outsourcing to another company, they don’t have to worry about an intellectual property infringement as this will be covered by the outsourced software provider.
Outsourcing can be a massive benefit to businesses. Businesses can save money by outsourcing manufacturing, marketing, logistics, and even accounting. It allows companies to focus on their core competencies and plow all of their efforts into the profitable parts of their business.
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