In the 1990s outsourcing has emerged as a major type of make-or-buy decision. When organizations buy from outside what they were formerly producing inside, it is called outsourcing. Outsourcing is reversal of a previous make decision. Some activities have been traditionally outsourced e.g. janitorial, food, and security services. More and more activities are being outsourced to downsize or right size, to emphasize on value added activities and to focus on core competencies. Such outsourcing leads to cost savings, survival and prosperity.
Information systems have been chosen as a target of outsourcing recently. Other outsourcing candidates are mailing, copying and traveling.
We can outsource the whole function or a part of it. Some elements of information technology may be of strategic significance. Some may be routine. Some may be critical. We have to break up a function into its parts, and see which part is of strategic importance or critical and should be performed in house and which can be outsourced.
Lean inventories mean better compliance with the delivery schedule. Transport companies have added logistics aspect to their function. They just do not move goods from one point to another. They manage all dispatches over a period of time. They have tracking technologies to reduce risks. In just in time system, such logistical support is crucial.
Outsourcing has one disadvantage. It results in lay offs. The problem can be mitigated if the service provider is in a position to absorb the laid off employees. Out sourcing is not liked by the unions.
Purchase function is closely associated with outsourcing decisions. But there are cases where purchase is not involved while outsourcing e.g. outsourcing of the information systems. In outsourcing of services, purchase may not play a major role.
Business Process Outsourcing (BPO):
Core competency theory advocates focus on strengths and get rid of everything else. It later gave birth to Business Process Outsourcing where functions that added no value were outsourced to specialist firms, leaving the organization free to concentrate on more basic functions such as manufacturing, product management or marketing. Besides, outsourcing is a cost effective method because outside firms perform the same operation at a fraction of a cost of what it cost the company to run an in house department. Outsourcing service provider at the top scale, acts like a consultant for that function.
Even a call center handling customer enquiries is BPO but such a function is at the bottom of the BPO pyramid. BPO can be used to perform complex tasks such as payroll processing, insurance underwriting, loan processing, marketing research. These jobs require diverse skills. Some organizations outsource even the entire HRD function. BPO work was formerly concentrated in the US and Europe. But as technology advanced, BPO centers started across the globe to avail of the cheaper costs. India has attracted a sizeable proportion of BPO work. MNCs started their own BPO centers as call centers some 6 – 7 years ago, but soon they graduated to far more complex outsourcing operations.
Many more BPO companies will pitch their tents in India in years to come. The company owned or company created contact centers were the first to set up shop. Now even specialist outsourcing firms and consultants have begun eyeing India as abase.
BPO has infinite market. Anything not forming part of core operations can be outsourced to a specialist – the advantages being time savings, low costs and improvements in processes.
Apart from MNCs indigenous firms have also started entering this market.
Some BPOs are bypassing call centers altogether and are directly entering at the higher end of the ladder.
e-Funds provides processing service of Deluxe, the largest check book printer in the US. It processes check book requests to the tune of 1.75 lacs to 2.0 lacs per month. A requisition is filled in the US, which reaches Deluxe or US branch of the Bank. It is scanned and image is retained on the server. Here an agent accesses the image and processes the request. This involves ensuring accuracy in name, address, spelling, font and any specific design request of the customer. This input is transmitted to the US for printing and delivery.