Logistics is often an area that can be outsourced.
When considering outsourcing, many organizations start with the same question: Which activities should we outsource, and which tasks should we do in-house?
For instance, imagine that you work in the healthcare industry. Should you outsource your cleaning staff, or hire in-house cleaners? Would the decision be the same for an IT company? If you worked for an airline, would you outsource your catering, or hire cooks directly? What if you managed a luxury hotel?
These are complicated questions, and the answers can have huge effects on your organization's short-term and long-term success.
Making the right decision can add significantly to your organization's bottom line in terms of cost savings and increased efficiency. Outsourcing can bring fresh minds to your business, and it can also free time up for innovation and other vital tasks. However, making the wrong decision can put your business at a competitive disadvantage. Perhaps you'll lose control of proprietary information, or receive components that don't meet your organization's quality standards.
So, how can you ensure that your organization makes the right decision?
The Outsourcing Decision Matrix helps you see clearly which tasks, processes, or functions you should keep in-house – and which can be safely outsourced. In this article, we'll examine the Outsourcing Decision Matrix and see how your organization can use it to make better outsourcing decisions.
The Outsourcing Decision Matrix, shown in Figure1, helps you consider two important factors in outsourcing a task:
The quadrants are as follows:
So how do you actually use the Outsourcing Decision Matrix to determine if you should outsource a task?
Analyze the task's strategic importance to your business.
Is this task vital to your company's competitive advantage? Is it part of what makes your business unique? Does it play a major part in your customers' selection of your products or services over those of your competitors?
Decide how important this task is to your company's day-to-day operational performance. Will your operations rapidly grind to a halt if it's done badly?
Now that you know where your task is on the vertical scale of strategic importance, and where it is on the horizontal scale of operational performance, plot the task onto the matrix.
The quadrant in which the task falls will give you a strong indication as to whether it should be outsourced, retained, strategically aligned, or eliminated.
Of course, this is only a starting point for your decision to outsource. You need to carefully consider the details of every situation. Our article on Working With Outsourced Suppliers will help you think about this.
With two-by-two matrices like these, it's not always clear where the lines between quadrants should, in practice, be drawn. In this case, for example, perhaps the line between the "Eliminate" and "Outsource" quadrants should be drawn at the 37% position, say, rather than at the 50% position? Use your common sense when interpreting your analysis.
The Outsourcing Decision Matrix will give you a good initial idea about whether or not to outsource tasks in your business. Tasks that are strategically important to an organization should usually be kept in-house. This enables leaders to control the most vital processes. Tasks that must be done for an organization to be operationally effective, but which aren't important to overall strategy, can often be outsourced safely.
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