Insourcing vs. Outsourcing: Differences To Consider When Choosing

Manufacturing firms constantly have to weigh their options when it comes to where and how products and materials are sourced. From shipping costs and worker overhead to logistics and quality control, much needs to be considered when choosing to outsource or insource parts of the manufacturing process. Here are some pros and cons of insourcing versus outsourcing in manufacturing.

Many analysts believe the decision between insourcing and outsourcing comes down to a company’s desire to control quality or control costs. While there are certainly specific cases where a business is able to have the best of both worlds, there will always be tradeoffs with each style of manufacturing. Does your business utilize insourcing, outsourcing or a blend of both? Let us know in the comments below.

Outsourcing is the process of hiring an outside organization that is not affiliated with the company to complete specific tasks. Insourcing, on the other hand, is a business practice performed within the operational infrastructure of the organization.

Outsourcing Vs Insourcing Difference Explained | What is Outsourcing & Insourcing

What is outsourcing?

Outsourcing is a business practice where a company hires an outside business or organization to perform a task or complete a specific project. There is generally no affiliation between the two parties and the work is usually based on a temporary contract, though the exact length of this contract can vary depending on the project. Companies sometimes use outsourcing because it can help them save money.

A company may also have a need for specialized services they dont have access to internally. For example, a furniture retail store may contract with a foreign furniture manufacturer to build their products for them if they dont have the proper equipment to do so themselves.

What is insourcing?

Insourcing is a business practice where a company assigns a job or project to individuals within the company instead of hiring from an outside source. Companies may insource because they already have internal resources for performing duties and completing goals. Insourcing refers to not only hiring internal employees for an assignment, but it can also refer to a company hiring someone new and bringing them to perform the work in-house. For example, a company may hire foreign employees to work at their facility for an extended period through a temporary work agreement.

Differences between insourcing vs. outsourcing

The following information describes important differences between insourcing vs. outsourcing:

Cost reductions

The costs between insourcing and outsourcing may depend on who a company hires, how long they hire them for and the purpose. Insourcing work may bypass the costs that a company incurs when outsourcing, such as deliverable costs and fees. Alternatively, insourcing may cost more than outsourcing if it requires a company to implement new costly operational plans, services and equipment that did not originally exist internally.

Outsourcing can help to reduce in-house labor costs, since outsourced providers may have a large pool of talented professionals with the skills to perform the job well. It can also reduce the costs of having to purchase expensive resources and equipment that they may only occasionally use.

Quality and productivity control

Insourcing usually offers a company the ability to monitor the development and progress of a project. Because of in-house work, they have may have unrestricted access to control the quality of the assignment and make frequent changes to increase productivity and ensure the outcome of the product meets their desired results.

Outsourcing often provides a company with less control over the quality and production of a project because method choices are given to an outside source, which the company cannot monitor or make alterations to during the process. Aside from setting the basic needs of the work, the company that is outsourcing its work typically has little decision-making control and doesnt have constant access to key members of a project.

Supporting functions

Outsourcing can help to improve the efficiency of a companys processes by contracting another business to perform its support functions. These are job duties and tasks that are often necessary but simple to do. Outsourcing these responsibilities allows a company to focus on other vital operational processes and get other work done. Insourcing requires internal employees to complete supporting functions, which can sometimes require additional resources, money and time. If there are many supporting functions that a company needs to complete, insourcing that work may be of higher quality since the company can regulate the work its employees produce.

Innovation

Insourcing often promotes innovation because of a companys ability to view its work throughout every stage of the process. It can use this benefit to identify problems and create solutions, which may also require a company to be innovative and create something better or develop a unique solution to a problem that the typical solutions cant resolve. With outsourcing, companies lack the ability to discover problems quickly in the developmental process, so it takes longer for them to resolve these issues, which can limit their capacity to be innovative.

Business miscommunications

Outsourcing work may have to deal with potential miscommunications due to both parties being in two different locations. As one person relays information to another person, along the way, miscommunication can occur. There is also the potential of not having immediate access to communication tools because of challenges like a power outage or signal disruption. Miscommunication isnt a particular issue with insourcing as it is with outsourcing. Although miscommunication can occur, it is much less likely since a company can communicate with its employees directly.

Brand value

Often, people may be more inclined to buy goods and services from a company thats known for producing locally. These companies that insource their work often help to create jobs for the residents in the local community, which may increase their brand value and customer base. Insourcing may also benefit from being able to resolve customer concerns and issues much faster than an outsourcing company, further building a more positive brand image. Outsourcing services and goods to an external source may not be as appealing to the locals, who might perceive it as a strictly money-based business decision.

Project completion times

When it comes to completing a project, outsourcing generally takes longer to complete than insourcing. There is a business term called the 4X rule, with X denoting the allotted time to finish the project and this means that outsourcing job functions can take four times as long to finish a project than normal. Insourcing work usually benefits from being able to complete projects on time because there is often going to be an on-site project manager to plan, implement and execute the project strategies and ensure that their team meets the defined deadlines.

Global talent

A benefit to outsourcing work is that a company has access to talented professionals in other countries, allowing them to perform specialized duties that would be difficult to complete in-house. This can help a business reach a wider range of business sectors and industries and perhaps a larger customer market as well. Insourcing work may not have access to the same global talent, which might limit the scope of their business initiatives and operations.

FAQ

Why is insourcing better than outsourcing?

Quality Control Capabilities:

Typically, with insourcing, companies get better control over their decision-making and the ability to attend to their tasks promptly and precisely. In the case of outsourcing, you’re far off the staff working for you, making it inconvenient to trace the quality of the work.

What are the advantages of insourcing?

Benefits of insourcing
  • Potential to reduce costs. …
  • Increase in project efficiency. …
  • Better control over decisions. …
  • Effective management over quality. …
  • Stronger ties between employees. …
  • Easier communication. …
  • More opportunities for employee development. …
  • Handling of intellectual property.

What is insourcing example?

Insourcing can be viewed as outsourcing as seen from the opposite side. For example, a company based in Japan might open a plant in the United States for the purpose of employing American workers to manufacture Japanese products.

How do you know when to insource or outsource?

In reflecting on how to decide whether to insource or outsource, the consideration should be made not just at an individual service level, but after reviewing the benefits, or otherwise, of the entire range of services under review, as well as how productive and innovative the working relationship between yourselves …

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