Outsourcing-Insourcing Criteria

7/29/2019 Outsourcing-Insourcing Criteria

1/8

Outsourcingmeans transferring resources to another company to meet a need

and be able to focus more effectively on the core competences of the Company.

Source: NEVI

Insourcing means to do with own resources the tasks that are now being

performed by an outside provider.


2/8

INSOURCING

ADVANTAGES DISADVANTAGES

Ownership of Know How More control over production, lead times and

quality Application of continuous improvement No risk of losing the supplier

Investment required (startup, maintenance andimprovement)

Specialized teams with limited use In-house competence non-existing or difficult

to create (loss of competitiveness over time)

OUTSOURCINGADVANTAGES DISADVANTAGES

Flexibility Turning fixed costs into variable costs Productivity increase Economies of scale Access to new technologies without need to

invest Focus on the companys core business

Free up human resources

Loss of know how Communication and coordination issues

Loss of control over timetable, process and

quality. Risk of losing the external supplier, once the

in-house competence has been lost The objective of the supplier is to bill more, while

the objective of our company is to spend less.

The supplier is not interested in applying

continuous improvements to extend the useful

lives of the customers subassemblies (it bills less).


3/8

PROCESS

TECHNOLOGY

CORE

MARKETSTUDY

COMPETITIVE

ANALYSIS

RISKSTUDY

OUTSOURCING

INSOURCING

ANALYSIS MODEL


4/8

CORE

It is the strategic focus at corporate level

It is the root cause of the companys competitiveness

The core produces a significant contribution (value-add) to the benefits perceived by the customer

It represents the collective learning of the organization

CORE Maintenance at Siderar:

- Availability of operating lines at low cost

Extend periods between programmed repairs

Decrease infant mortality

Increase the useful lives of subassemblies that would cause unplanned stops or scheduled interventions Reduce the duration of extraordinary repairs and extend frequency

Increase productivity of own and outsourced labor

Reduce the parts stock in the warehouse


5/8

PROCESS TECHNOLOGY

weak intermediate high weak intermediate high weak intermediate high

Growing

Mature

Competitiveness of the Technological Process

Maturityoftechnologicalprocess

Emerging

Low today High today High in the future

Significance of the technological process as a competitive advantage

BUY

MAKE

BUY MARGINAL

DEVELOP

COMPETENCE

IN-HOUSE

DEVELOPSUPPLIER

MAKE

MARGINAL

The process technology should be analyzed based on three fundamental criteria:

The maturity of the technological process in the industries around us

The importance of the technological process as a competitive advantage

The competitive position of the Company vis--vis its competitors.


6/8

MARKET STUDY

When studying the market that surrounds our company, consider:

If there are suppliers that dominate the process technology

If there arent, if a supplier can be developed

If the supplier can meet the needs in terms of quantity, quality and lead time

If they cannot meet the needs, if they could invest to meet the needs

If the supplier can apply economies of scale

Note: Make sure the supplier can apply economies of scale. If they cant, our company would be paying

for their fixed costs, and the profits of our supplier are losses for the company.


7/8

COMPETITIVE STUDY (Costs)

It is important to compare the total cost with that of providers and classify costs as follows:

Own costs 25% higher than the best alternative

Own costs 0 to 25% higher or lower than the best alternative

Own costs 25% lower than the best alternative

Outsourcing: The company, the processes and the equipment are not competitive. There will be a competitive

disadvantage if the decision is to make in-house. The activity can be outsourced to more competitive suppliers.

Outsourcing: If it is not strategic (core), it should be outsourced when the need arises to invest, in order to increase

competitiveness. Investment is not justified because better options are available externally.

Insourcing: It provides clear competitive advantages. It becomes the strategic focus for future investments and

continuous improvement efforts.

Note: 25% is considered as value of reference to minimize changes in external conditions.


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RISK ANALYSIS

(1) Loss of strategic skills

After implementing outsourcing, some companies find that their suppliers are unable or unwilling

to meet their requirements.

The problem occurs when, faced with this situation, the company no longer has the capability of

resuming the task that has been outsourced, and has failed to develop alternative suppliers

(1) Loss of control over a supplier

Control may be lost when the priorities of the supplier are no longer aligned with the priorities of

the customer, either because the product / service ceases to be attractive to the supplier due

to changes in the market, or because it goes bankrupt / out of business.

Documents

Outsourcing-Insourcing Criteria