Insourcing, Outsourcing, and Co-Sourcing: Which Is Right for You?
Joel A. Herman
Conventional wisdom often holds that it is most efficient to keep all roles in-house, but this is not always the case. Rising labor costs, increased costs to meet advancing technology needs or equipment improvements, internal quality control issues and a number of other factors could dictate certain operations to be handled more effectively and efficiently by a third party. If an organization keeps hitting the same internal roadblocks or is looking for a new way to optimize processes, an alternative solution like outsourcing or co-sourcing could prove more efficient.
Tracking and analyzing product or process-specific costs are essential. Computing direct costs, such as raw materials and labor, are generally straightforward. However, the overall profitability of a product is also affected by a number of other factors, including mechanical downtimes, excessive training, quality issues and returns, excessive customer service time or purchasing difficulties, etc. When processes are not running efficiently, a gut reaction may be to hire more employees or invest in newer equipment or more innovative technology in an attempt to fill gaps. However, a more cost-effective and employee-centric option is to examine alternatives to reduce the overall process cost.
Alternatives to insourcing free up resources and allow finance and accounting (F&A) and other departments to prioritize core operations while leveraging external solutions like specialized talent and advanced tools to streamline workflows and add value. In a limited labor market, it also allows existing and permits key employees to balance their workloads and better invest their time in other high-value services. With more and more companies adopting fully remote or hybrid-work models, leaders are increasingly open to adopting remote outsourcing relationships with their third-party providers and hybrid approaches to co-sourcing.
Outsourcing is often viewed as an interim solution to fill critical roles during staffing and leadership changes – that is, short-term and people-focused. In actuality, it is increasingly common for organizations to develop long-term partnerships with third-party providers that optimize internal resources and align existing needs with external resources (people, technology or a combination of both). Rather than an option to leverage in a time of need, outsourcing is a viable option any time an organization is looking to strategically enhance and refresh processes.
F&A departments can find themselves in a position where they have enough staff to manage their workloads, but not the right staff or the appropriate systems to manage these tasks efficiently. Rather than focusing on outsourcing a particular role, this scenario provides the opportunity to rethink a specific function of the F&A department. A third-party provider can implement a solution that uses software or automation to manage a previously manual process, freeing up staff to focus on higher-value work.
Outsourcing can provide an organization with fresh perspectives and best practices, opening the door for optimization and opportunities to scale business.
In a co-sourced model, internal staff works with external professionals to perform key functions. This model may be attractive to organizations focused on developing an ongoing relationship with a third-party advisor or subcontractor. A co-sourced model is best for your business if you seek a “happy medium” between insourcing and outsourcing, as your business maintains a high degree of control over the approach to business and day-to-day functions.
Co-sourcing could be particularly attractive for your business if your needs are likely to fluctuate throughout the year. Co-sourcing provides more flexibility than other approaches, as services can be scaled up or down as needed based on demand. It is also possible to move from co-sourcing to outsourcing as your needs change.
For more information, contact Joel Herman at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.