WHY DO COMPANY OUTSOURCE BUSINESS PROCESS

Assalammualaikum and good evening to all of our readers.

So today we are going to discuss about why company outsource their process.  As you can see in a modern organization all the other company is related as also play vital role in running the production after we outsource.

It is depend from the decision of top management either they want do all the activities or just focusing on what they want known as their objective by hiring other company to do the other process such as proton which they does not produce tires, but they hiring Silverstone to supply the tires and the process of proton company is only to assemble it to the car.

As you can see, this will lead to a lot of benefits as example is reducing cost and shorter the lead time.

Here are some of generic strategic benefits of outsourcing:
1. COST MINIMIZATION
2. FOCUS THE ORGANIZATION OBJECTIVE
3. IMPROVE PERFORMANCE
4. OBTAIN CASH INFUSION

I will explain about the first benefits which are the cost minimization.

For your information, as you hiring other company to do your process in your company it will lead to reduce the cost of operating such as transportation cost and labor cost. It will transform the fixed cost to variable cost. For example if you own your truck in your company you will liable for the maintenance and tooling cost. But if you used other company transportation such as Tiong Nam, you only need to pay them the cost you used their services.

Second, I will explain about focus the organization objective.

By focusing what organization does, it will avoid company to think about the other process that is not related to the objective. Company will be more focus on what they’re doing. For example, Proton is a well-known car brand in Malaysia. They producing a lot of design and the car must be expensive. So, they need to secure their company from being pilferage as they hiring security services as they are more expert on this job.  

Third, I will explain about the improve performance.

This will lead the company to improve their quality, increasing their productivity and obtain new technologies from external sources. Just now I have told you about the Proton who hires Silverstone to supply them tires. Because Silverstone focusing on producing tires. They have skilful labor which more experts. If Proton produces the tires itself, they might be a problem regarding the quality as they don’t specialize in producing the tires. 

Last, I will explain about the obtain cash infusion. 

I will give you an example, at first your company own 8 truck for deliver your goods to all your retailers. As a top management saw that the transportation will incurred a lot of cost such as maintenance. So, they make a decision to sell all the trucks to other company. After the trucks were sold they get cash infusion. They can use the cash to hire other company transportation services to deliver your goods as it will reduce the fixed cost.

Finally, I have told you all the benefits for outsource. As the conclusion, nowadays in modern organization by being selfish are not going to give you a lot of opportunity but if you make relationship with other company will make your company more better.