Outsourcing vs Insourcing: What’s Best for Your Business?

According to a recent study, 80% of small business owners are planning to invest in outsourcing more in their business.

If you’re like most small business owners, you have limited resources and only so much time in the day. You want to take advantage of every opportunity to grow your company but don’t know where to or how to start.

The first step is deciding whether outsourcing or insourcing will work best for your business needs. But don’t worry.

We’re here to present our complete outsourcing vs insourcing guide to help you decide between the two options.

What Is Insourcing and the Pros?

Insourcing is the geographically or functionally based outsourcing of internal business functions to a nearby, owned facility. Insourcing is the opposite of outsourcing.

There are many benefits of insourcing to your business, with some being:

Insources functions or labor that is not core to the business strategy
Positive impact on morale and workforce productivity
Utilization of specialized knowledge & skillsets in employees
Reduction in “knowledge loss” or time required for new recruits
Focus on growing business
Identify opportunities for automation or increased efficiency

There are so many benefits to insourcing, but it’s not for every business. With that said, let’s look at the cons.

What Are Some Cons of Insourcing?

With many company benefits of insourcing, there are also some cons that come with it. Here are just a few:

Costs will vary based on local rate or level of expertise in a specific field
Requires management team to oversee & approve work
May require additional training for employees
May require more space in order to accommodate employees
Risk of increased costs, labor rates, or additional training

As you can see, despite the overriding benefits of insourcing, there are certain things you need to be aware of before you choose it.

Examples of Insourcing

Insourcing is commonly seen in industries like manufacturing, IT, or administrative services. Since insourcing is a form of outsourcing, companies across all industries can do it.

Here are some industries that often uses insourcing:

Manufacturing

One prime example of insourcing is the manufacturing industry. In this industry, there are many tasks that can be outsourced to a third party company, however, these jobs should not be considered core to any business.

By having these functions outsourced from your own facility, you can work on growing your business while still maintaining the basics/necessary expenses – like electricity bills and rent!

Medical Billing Services

Many businesses offer their services in a specific region or state. For example, a medical billing company may have an office in California but want to offer their medical billing services to clients in other states like Utah.

This company would not be able to provide the same level of service or expertise if they allowed these functions to be handled by one single outsourced partner.

In this case, insourcing is a great option!

By keeping the non-strategic tasks local instead of outsourcing them across state lines, companies can retain employees with specialized knowledge and skillsets while still competing against international competitors in the marketplace.

What Is Outsourcing and the Financial Benefits It Has on Your Business?

Outsourcing is where you hire an outside service provider for an assignment. A specific project with defined results might be outsourced, as well as activities such as maintenance and administration.

When looking at insourcing vs outsourcing, one needs to consider organizational business goals and processes, the nature of work required, and the size of the business among other things.

You can benefit from outsourcing if there are clear objectives that need timely completion and those objectives don’t require major attention frequently.

In other words: outsourcing allows your company to focus on your core competencies instead.

There are numerous benefits of outsourcing, with some being:

Efficiency and cost-effectiveness
Focus on core competencies & business strategies to drive growth
Increase in productivity if managed properly

Despite outsourcing being the more commonly used, there are some cons that you need to be aware of. Let’s talk about them now.

What Are Some Cons of Outsourcing?

Costs will vary based on the expertise required for a specific task or project. Be sure your provider is reliable, reputable, and provides value knowing that it could be more costly than insourcing.

Also, understand the nature of work before choosing an organization to partner with; not all service providers can offer customized solutions.

The provider may have contractual agreements with other companies that prohibit them from working for your firm. Make sure they are free beforehand to avoid any contract breaches later on down the line.

Be sure you protect your intellectual property as well by having an NDA or confidentiality agreement in place.

Examples of Outsourcing

Outsourcing is most often seen in manufacturing with third-party logistics providers, IT firms with cloud computing providers, and even administrative tasks with professional employer organizations (PEO).

However, outsourcing is also seen in many other industries that have non-strategic or support functions.

Manufacturing with Third-Party Logistics Providers

Manufacturing companies often use third-party providers to handle logistics. This can be cheaper and the third-party providers might know more.

This type of outsourcing cuts down on the money that companies spend on their own employees. It also frees up time for other important jobs.

IT Functions with Cloud Computing Providers

Cloud computing has become a popular option as more businesses look for ways to improve efficiency and reduce costs. Many cloud computing companies can take over all your “basic” IT needs.

As a business, taking over these tasks can be too much. But you can outsource to companies that have computers in the clouds.

That means they are not on your computer and you don’t have to do them yourself. You can focus on more important things like strategy.

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