When Should I Consider Outsourcing?
February 6, 2019Have you ever considered outsourcing some on your organizations non-core functions?
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- * Mail Metering
- * Statement Printing
- * Direct Mail Campaigns
- * Presorting
These are all services that are provided by TC Delivers to many organizations similar to yours. Should you consider outsourcing these services?
When evaluating a function as a candidate for outsourcing, the three most important factors to consider are:
- * Is it a core competency directly related to the business?
- * What are my internal equipment (leases, rentals and service agreements) and personnel costs compared to outsourcing?
- * Could the personnel assets allocated to these services be better used elsewhere?
- * Could the space utilized by the equipment that provides these services be more valuable used for something else?
- * Is there internal subject matter expertise that remains current on equipment and processes?
The core competency issue is often a topic of fierce debate. One could argue that an insurance company should outsource the mail operation because it’s not directly related to insurance. On the other hand, mail is probably the most common form of communication between an insurance company and its customers. A function is a core competency if it’s a service your customers expect, it has a direct impact on your customers’ perceptions of the company, or it has a significant impact on the bottom line.
The main business driver that leads most companies to outsource is financial. An external vendor tends to be able to provide the service at a lower cost than the internal operation. To make this determination, managers must be able to quantify the real costs of a specific process or product. This begins with keeping accurate measurements of volumes, labor and materials. Then apply all charges, including indirect and overhead costs, to develop an accurate cost per piece. This is the baseline when comparing an internal cost against bids from vendors.
Subject matter expertise may be the most important factor to consider. The management and staff must consistently display technical proficiency and industry knowledge. This requires on going education, participation in outside trade shows and other industry events. Further, the manager should be a proactive internal consultant who develops solutions for the business units. The internal operations leadership should be active participants in industry trade associations and attained professional certification.
If a process is critical to the customer relationship, and the in-house operation performs that function at a reasonable cost while adding value to the company, then that activity should be kept in-house. But if the process has no strategic value, is costly to produce, or the internal organization has no special capabilities, then consider outsourcing.
Whether or not a company decides to outsource a certain function, that decision should be reviewed on a regular basis. The organization should continually examine its processes and reevaluate how to improve their impact on customer relationships. Also, shifts in technology, production costs and corporate organizational structure can impact the decision whether or not to outsource or bring a function back in-house.
TC Delivers could help facilitate these decisions by providing a no cost analysis of your internal operations. Together we could review the comparisons to make an educated decision on whether or not to outsource.
