The practice of outsourcing has increased tremendously in the business sector due to the numerous benefits that accrue from outsourcing. Outsourcing improves efficiency and reduces operational costs. However, businesses cannot outsource all of their functions. Below are examples of functions in an airline operation that are most and least amenable to be outsourced.
Customer service is one of the functions that is most amenable to be outsourced. Instead of the airline hiring numerous individual operators, it can contract a single call centre to handle customer calls. It is inefficient for the airline to handle its own call centre because it will be forced to pay for a lot of idle time. Customers make most of their calls during certain peak times. Another function that the airline can outsource is maintenance of aircrafts. Aircraft maintainance requires a high level of expertise and high initial expenses of buying maintenance equipment and machinery. The airline will also incur high overheads due to idle time if it hires maintenance engineers since they are only needed when an aircraft breaks down. Therefore, it would be efficient and economical for the airline to engage a specialized vendor to maintain its aircrafts .
Data analysis is another function that is amenable for the airline to outsource. Airlines normally have huge volumes of data that require complex processes to extract useful information from it. The airline needs to analyze this data to keep up with emerging trends and tailor its services to improve customer satisfaction. Data analysis function is performed periodically hence it would be uneconomical to employ permanent staff. The airline could also outsource baggage handling and catering services since they are not core functions .
There are other functions of the airline that are least amenable to outsourcing. Activities such as capacity planning, route planning, ticketing, piloting, licensing and sales are core activities in the airline business. Therefore, they should not be outsourced. The airline needs to have direct control of these activities because they have a huge impact on long term strategies of the business. These activities also aid in differentiating the airline from its competitors.
Firms in the manufacturing industry are increasingly embracing outsourcing in their value chain to enhance efficiency, reduce costs, improve profitability and ensure sustainability . There are numerous functions in the value chain that are amenable for a cross-country buses manufacturer. Below are examples of functions that are most and least amendable to outsourcing.
First, the firm can outsource its human resource management function. Manufacturing entities requires many employees. This makes selecting, interviewing, training, promoting, firing and performing other human resource functions costly and time consuming. It is therefore prudent for the firm to outsource the human resource management function to a specialized vendor. Secondly, the firm can outsource the manufacturing of inputs to specialized vendors who can produce them at a lower cost. This will not only reduce production cost but also reduce time required to manufacture a country bus hence improving production capabilities.
Purchasing of materials and supplies is another function that is most amendable to outsourcing. Purchasing requires high expertise to ensure materials and supplies are sourced from the cheapest producers, are of high quality, are delivered on time to minimize stock out costs and inventory holding cost are minimized. The firm should therefore outsource the purchase of supplies and materials function to ensure efficiency and minimize production overheads.
The firm should also outsource its IT function. It should use specialized vendors in creation, maintenance and reengineering its IT systems and architecture. Management of computer network of a manufacturing is complex due to the nature and multiplicity of activities involved in manufacture. Management of computer network for a manufacturing entity also requires real-time support. Maintenance of computer networks involves high set up costs. Information technologies are passed by events and get obsolete rapidly requiring new technologies to be adopted often. Therefore, it would be more economical to outsource the IT function.
The manufacture of cross-country bus is least amenable to outsource because it differentiates the manufacturer from its competitors. By outsourcing the manufacture of cross-country buses, the firm faces the risk of the finished product falling below the quality standards. This may lead to reduction in market share and a dented image. The sales and marketing function is also least amenable to be outsourced. This is because it has a direct impact on long term strategy of the firm. Outside vendors with malicious intentions may under price thus the firm may not break even. Consequently, the firm may realize losses or set very high prices thus reducing sales volume.
Outsourcing the manufacture of widgets makes financial sense. The cost difference between manufacturing and engaging an outside vendor is significant. By engaging an outside vendor, the firm makes a cost saving of $30,000.
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McIvor, R. (2005). The outsourcing process: strategies for evaluation and management (illustrated ed.). Cambridge: Cambridge University Press.
Power, M. J., Desouza, K. C., & Bonifazi, C. (2006). The outsourcing handbook: how to implement a successful outsourcing process (illustrated ed.). New York: Kogan Page Publishers.