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Making the Right Outsourcing Decision


In today's world, organizations have to make dynamic decisions such as "Should we be making these products or should we be purchasing the entire product or its components from someone else". In a world where outsourcing and offshoring promise lower cost options, these decisions may be made in haste and without an understanding of the real savings involved.

On the surface, outsourcing appears to save you money. However, real cost savings can only be achieved if the supplier uses a more efficient process or significantly less expensive labour. Thorough investigation and analysis is therefore required to determine if the cost savings promised up front camouflage bigger issues that could compromise quality or delivery.

In addition, unless an organization is able to reassign or eliminate some fixed costs (i.e. overhead, tools, fixtures, facility), the decision to outsource will only provide savings on variable costs (i.e. labour and material). The fixed costs will be spread over a smaller base of products minus those that are outsourced - so your real costs could actually go up!

If the organization was able to redeploy its fixed assets to focus on more value added products or recoup fair market value through the disposition of fixed assets, then some of the true savings will start to materialize. In this were to happen, the decision to outsource then becomes the right business decision.

To gain a better understanding of all the benfits and challenges of making appropriate make vs. buy outsourcing decisions, please contact your local MNP consultant.