Insourcing, Outsourcing, And Co-Sourcing: Which Is Right For You?

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Conventional wisdom often holds that it is most efficient to keep all roles in-house, but this is not always the case. Rising labor costs, increased costs to meet advancing technology...
United States Employment and HR

Conventional wisdom often holds that it is most efficient to keep all roles in-house, but this is not always the case. Rising labor costs, increased costs to meet advancing technology needs or equipment improvements, internal quality control issues and a number of other factors could dictate certain operations to be handled more effectively and efficiently by a third party. If an organization keeps hitting the same internal roadblocks or is looking for a new way to optimize processes, an alternative solution like outsourcing or co-sourcing could prove more efficient.

INSOURCING

Tracking and analyzing product or process-specific costs are essential. Computing direct costs, such as raw materials and labor, are generally straightforward. However, the overall profitability of a product is also affected by a number of other factors, including mechanical downtimes, excessive training, quality issues and returns, excessive customer service time or purchasing difficulties, etc. When processes are not running efficiently, a gut reaction may be to hire more employees or invest in newer equipment or more innovative technology in an attempt to fill gaps. However, a more cost-effective and employee-centric option is to examine alternatives to reduce the overall process cost.

Alternatives to insourcing free up resources and allow finance and accounting (F&A) and other departments to prioritize core operations while leveraging external solutions like specialized talent and advanced tools to streamline workflows and add value. In a limited labor market, it also allows existing and permits key employees to balance their workloads and better invest their time in other high-value services. With more and more companies adopting fully remote or hybrid-work models, leaders are increasingly open to adopting remote outsourcing relationships with their third-party providers and hybrid approaches to co-sourcing.

OUTSOURCING

Outsourcing is often viewed as an interim solution to fill critical roles during staffing and leadership changes – that is, short-term and people-focused. In actuality, it is increasingly common for organizations to develop long-term partnerships with third-party providers that optimize internal resources and align existing needs with external resources (people, technology or a combination of both). Rather than an option to leverage in a time of need, outsourcing is a viable option any time an organization is looking to strategically enhance and refresh processes.

F&A departments can find themselves in a position where they have enough staff to manage their workloads, but not the right staff or the appropriate systems to manage these tasks efficiently. Rather than focusing on outsourcing a particular role, this scenario provides the opportunity to rethink a specific function of the F&A department. A third-party provider can implement a solution that uses software or automation to manage a previously manual process, freeing up staff to focus on higher-value work.

Outsourcing can provide an organization with fresh perspectives and best practices, opening the door for optimization and opportunities to scale business.

CO-SOURCING

In a co-sourced model, internal staff works with external professionals to perform key functions. This model may be attractive to organizations focused on developing an ongoing relationship with a third-party advisor or subcontractor. A co-sourced model is best for your business if you seek a "happy medium" between insourcing and outsourcing, as your business maintains a high degree of control over the approach to business and day-to-day functions.

Co-sourcing could be particularly attractive for your business if your needs are likely to fluctuate throughout the year. Co-sourcing provides more flexibility than other approaches, as services can be scaled up or down as needed based on demand. It is also possible to move from co-sourcing to outsourcing as your needs change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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