Posted in Operations and Supply Chain Terms, Total Reads: 1062

Definition: Outsourcing

Outsourcing refers to hiring out or subcontracting some of the work that a company needs to do on its own. Most of the time companies outsource their non-core function.  The main aim of outsourcing is to reduce cost to company and improve its profitability.

Companies like Apple outsource most of their products to its Original Equipment Manufacturer (OEM) to reduce its overall cost. It can then focus more on its core functions of marketing and Research and Development to maximize its profitability.

On the other hand some companies outsource design and technical work and focuses on manufacturing which is their core function.

Some of the disadvantages are misuse of IP rights, labor related problems due to job loss at outsourcing company, Government barriers, etc.

The above diagram shows outsouring process.


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