Reorganising Production (SL IB Business Management)

• Outsourcing is the process where a business delegates specific business activities (IT, customer support, HR etc) to external service providers
  • Businesses choose to outsource these functions to reduce costs, access specialised expertise, or focus on core competencies
    
    
• Subcontracting occurs when specific parts of a larger project or contract are assigned to third-parties
  • The business remains responsible for the overall project or contract but certain components or tasks are delegated to other companies/individuals with specialised skills
    
    

The Advantages Associated with Outsourcing & Subcontracting

 

Outsourcing and subcontracting offer a range of benefits to businesses
 

• Cost savings
  Businesses can often reduce expenses associated with operations such as hiring and training employees, maintaining infrastructure and managing IT systems
  
  
• Access to specialised skills
  External specialists have resources that the business lacks internally which allows it to benefit from the knowledge and experience of industry specialists as and when required
  
  
• Increased flexibility
  They can provide greater flexibility to scale their operations up or down based on demand fluctuations which is particularly valuable in industries with seasonal or unpredictable demand
  
  
• Focus on core competencies
  Businesses can concentrate their resources and efforts on their core competencies where they can add value
    

The Disadvantages Associated with Outsourcing & Subcontracting
 

• Quality control
  Using external providers makes it harder to ensure consistent quality and adherence to company standards
  
  
• Loss of control
  Handing direct control over those activities to others outside of the business may be risky. Companies must carefully select reliable partners and establish clear contractual terms to protect their interests
  
  
• Data security and confidentiality
  Sharing sensitive information outside of the business introduces potential risks to data security and confidentiality
   
• Communication and cultural differences
  Using global providers may result in language barriers or problems with time zone differences. Cultural differences may present communication challenges

• Offshoring occurs when a business sets up operations in another country to carry out certain business processes so as to:
  • Take advantage of lower labour costs
  • Gain access to specialised skills
  • Expand into new markets
     
• Common examples of offshoring practices include call centres in foreign countries, software development teams or manufacturing plants established in countries with cheaper labour
  
  
  

The Advantages & Disadvantages of Offshoring

Advantages

Disadvantages

Labour costs are often lower in offshore locations which reduces costs (salaries, benefits etc) Allows businesses to tap into skilled labour that may not be readily available domestically By offshoring operations to different time zones, businesses can take advantage of 24/7 operations and provide better customer support By establishing a presence in a foreign country, businesses can gain local market insights, develop relationships with customers and spot new growth opportunities

Offshoring can present challenges in terms of communication and language differences which may result in delays Maintaining quality control can be more challenging when operations are moved offshore Offshoring involves sharing sensitive information and intellectual property with external parties which may raise concerns about data security or confidentiality Offshoring can result in domestic job losses as operations are shifted to lower-cost locations

• Insourcing is where a business assigns tasks to individuals within the organisation which were previously outsourced
  
  
• There are several reasons why businesses may choose to insource certain activities

Reasons to take back control through insourcing

• Cost control
  Can be a cost-saving strategy as it eliminates the need to pay external specialists
   
• Quality control
  A business retains direct control over the quality of work being produced and may find it easier to establish their own standards
  
  
• Flexibility
  Provides the business with greater flexibility to respond to changing business needs and so can adjust workflows and adapt to new challenges
   
• Knowledge and skill retention
  Businesses can develop specialised skills within their own workforce which can also reduce the risk of intellectual property breaches

• Reshoring occurs when a business brings back its production activities to its home country from abroad
   
• It involves reversing the previous decision to offshore or outsource those activities to another country
   
• There are several reasons why a company may choose to reshore its operations

Reasons for a business to reshore its operations
 

• Cost considerations
  The initial cost advantages of offshoring may reduce due to factors such as rising labour or transportation costs in the foreign country
  
  
• Quality control
  By reshoring companies can have better control over the manufacturing processes and ensure higher quality control standards which may lead to improved customer satisfaction
   
• Intellectual property protection
  By bringing manufacturing back to their home country, they can reduce the risk of intellectual property theft
   
• Supply chain resilience
  The COVID-19 pandemic highlighted the vulnerabilities of global supply chains when disruptions in transportation, logistics and international trade led to delays and shortages of critical goods. Reshoring reduces dependence on foreign suppliers
  
  
• Market proximity
  Can allow companies to be closer to their target markets which can lead to faster delivery times, reduced transportation costs and improved responsiveness to customer demands