In-House or Outsource: Which One Fits?
In almost every industry, business owners are considering ways to outsource some business functions. Others are looking at bringing everything in-house. It’s not a one-size-fits-all proposition. How do you decide?
Home Depot, for example, has taken a big step toward moving its entire supply chain in-house. The building-supplies giant recently opened an 800,000 square foot distribution center in Dallas, Texas, with the goal of being able to provide same day/next day delivery to 90% of the U.S. This new distribution center gives Home Depot “the opportunity to own its entire supply chain,” according to SVP of supply chain Stephanie Smith.
Outsourcing has its own set of benefits, however, and the risks and rewards have to be evaluated for each unique situation, according to Micah Pratt, writing in Business.org. The upside of outsourcing includes:
- Expertise without the learning curve– Business functions from accounting to document imaging, inventory systems, and facilities management all require a fair amount of expertise to establish and maintain. Outsourcing provides immediate access to expert professional services without the delays of the in-house learning curve.
- Focus on core business– When you outsource some functions, you can turn your attention to the important tasks of sales growth, customer retention, and innovation.
- Lower-cost growth– Outsourcing to a professional-services provider allows businesses to grow without all of the capital costs and operating expenses associated with expanding those functions in-house.
Outsourcing is almost always a cost saver. Some business owners and managers worry, though, that they will lose control of essential information or product quality.
If reduced oversight and control is a concern, look for a single vendor who can provide more than one outsourced function. A vendor who provides storage products, professional services, and inventory systems, for example, will be easier to monitor than three different vendors for these three different functions. Start off with a single project, and as a vendor proves to be trustworthy, add more functions to the vendor’s outsourcing contract.
A careful cost-benefit analysis yields useful insights into the relative value of outsourced vs. in-house, and accounting expert Kenneth Boyd offers a template to help weigh the pros and cons. As businesses everywhere face downward pressure on costs, now is the time to evaluate whether some business functions should be in-house, and others can be beneficially outsourced.
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