Outsourcing is the contracting out of an internal business process to a third-party organization. When some process is not organization’s core competence , getting a specialist to run it more efficiently is outsourcing. The specialist benefits by its specialized knowledge in the field and economies of scale to lower the costs. The warehousing operates on either a dedicated or shared-use basis.
In the past warehouses were an extension of a manufacturing facility, the land was owned by the company and was thus operated in house. With the reduction of manufacturing in many Western economies and production moving to the Far East, many warehouses are no longer required to store raw materials and work in progress alongside finished products. Today finished goods are stored in warehouses operated by the owners of the goods, by wholesalers, distributors or agents, in dedicated warehouses operated by third-party contractors, or in shared-user warehouses operated by third-party contractors. For successful outsourcing it is important that the process remains seamlessly integrated with the rest of the business and improves performance.
There are three main benefits of outsourcing
- Cost savings: Outsourcing often removes the need for a capital expenditure, or a full-time employee.
- Increased efficiency: With a third party taking on the hassle associated with a particular function, frees business staff to focus on the core areas of the business.
- Outsourcing gives access to key expertise: The company one hires should ideally be a specialist in its field, up-to-speed on the latest developments and be working with cutting-edge tools. Market will always provide people capable of handling specific needs, available at all times.