Bone Up on the Ins and Outs of Outsourcing

08/20/08

Deciding which work to outsource raises some universal questions both for HR managers and for those in other departments with jobs that could be subcontracted. Whether you’re looking to farm out some of your own tasks or training others to do so, these questions can help managers weigh both sides of the issue and make a sound judgment call.

1. Does the workflow fluctuate? Dedicating in-house resources to on-again, off-again work can be hard to defend. It’s often cheaper and more efficient to subcontract intermittent or ad hoc projects. For example, freelance word processors, bookkeepers, and graphic designers can be hired to step into the breach during peak periods to handle overflow work that might bury a full-time staff or break a department’s overtime budget. Some accounting firms, for example, hire college students to help summarize clients’ data before the April tax crunch.

2. Could subcontractors do the work better, faster, or cheaper? Outside firms that have carved out a narrow niche can be highly cost effective, thanks to their investment in state-of-the-art technology and/or expert staff. For example, HR may decide to have employee morale surveys and background checks done by outside specialists who have more expertise.

Manufacturing companies sometimes find that subcontractors can negotiate better prices on raw materials and more reliable delivery commitments from vendors because of their long-standing relationships and large-volume purchases. Businesses that buy in smaller quantities, intending to make their own parts in house, wouldn’t have as much clout. That’s one reason why vehicle manufacturers often hire Eaton Corporation to make their switches, sensors, fluid pumps, and other components

3. Are subcontractors unreliable? If vendors consistently deliver work a day late and a few parts short, fail to meet quality standards, or treat you like an aggravation instead of a valued customer, you may want to bring the work back in house. That gives you total control over the results from start to finish

4. Are your present facilities too small? If you’re crowded for space, sometimes it’s cheaper to contract out some tasks or lease facilities rather than borrow money to expand your physical plant—especially in a roller-coaster economy. For example, firms of every size rent modular storage containers so they can hoard materials and supplies when prices fall, purchase inventory at bargain prices from bankrupt competitors, or stockpile finished goods to meet increased demand at Christmas.

5. Are your in-house people up to speed? When employees leave unexpectedly, you may have to farm out some work until you can hire and groom full-time replacements. This situation, like a fluctuating workflow, may justify subcontracting to temporary staffing agencies.

6. Do you need to cut personnel costs? Outsourcing is a logical move when you need to save money on fringe benefits and related personnel expenses. In addition to temp agencies, local chapters of professional organizations and retirees’ clubs can be productive sources of independent contractors and other home-based workers who welcome work-for-hire assignments from a regular clientele.

7. Does the operation require sophisticated equipment, skilled technicians, or certified processes such as ISO 9000? If so, you may have to do it in-house to comply with industry trade group standards, customers’ contract provisions, or (in the case of military and national security work) federal laws and regulations.