Steps to outsourcing

Written By Steps To Faculty Published July 6th, 2010

Outsourcing is a process of contracting to a third party to provide services or products to the company. It is also procuring services or products from an outside supplier or paying another company to provide the services which a company might otherwise have employed its on staff to perform. While you may have heard of the many benefits of outsourcing, include cheaper labor and material costs, there are some drawbacks to outsourcing everything. The reasons why outsourcing is bad for the company is outlined below. If the outsourcing disadvantages are more than the advantages, then it should be avoided at all costs as you will not benefit.

Take a look at these top six disadvantages.

Step 1 Lose your managerial control

By outsourcing, you are turning the management and control of the business to another company. The outsourcing company will not be driven the by same standards and mission of the company. They will be driven and motivated by the profits they want to make from the services they are offering.

Step 2 Keep an eye on hidden costs

The company usually signs the details of the services to be offered that the outsourcing company can provide. Anything not covered in the contract will mean an additional legal fee for the lawyer to review the contract in addition to any amenities that need to be purchased outside the contract. also consider logistic costs, or the costs to ship products back and forth. Even if you use an optimized trucking route or ship waterway, these added costs can outweigh maintaining an internal processing plant.

Step 3 Consider threats to security and confidentiality

If some confidential information such as pay roll is transmitted to the contracting company, then there is a risk that some confidential information such as pay roll is transmitted to the contracting company, then there is a risk that confidentiality will be compromised. Also, the contracting company will also know your modus operandi. As such, they will also know your secrets to profits and can undermine your market share.

Step 4 Watch for quality problems

The contract entered by both companies ensures that the stated price in the contract is fixed. Since the outsourcing company is driven by the profits, then, the only way to increase the profits is to decrease expenses hence compromising on the quality of the products through the use of cheaper labor and materials. If your firm has a brand name for quality, then this may compromise your standing in the minds of your customers.

Step 5 Bind your financial well being to that of another company

If the outsourcing company goes bankrupt, then your company’s operations will be affected negatively since the services will not be provided any more and another outsourder may charge higher prices and provide fewer services. Also, you can only succeed if your outsourcer is reputable and reliable and delivers on time. Any problems that occur within your outsourcer, then you also are impacted.

Step 6 Dodge Bad publicity and ill will

If the outsourcing company develop a bad reputation, be careful not to let your company name get affected since you use their service. Also, let your media department work to maintain positive relations with the outsourcer should such an event occur.

Remember, there is always one drawback for every benefit. Please visit for more great business advice.

Roger Due

Investing in Your Destiny® & Coaching Program - Wealth Building Summit Dallas, Texas

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