How Strategic Co-Sourcing can add long-term value?​​

As businesses grow, there are various strategies businesses employ to perform the operations. These strategies ranges from hiring more internal resources to engaging third parties for a specific job or on long term contracts. Let us discuss some of these, and how to use them strategically to gain competitive advantage and cost savings.

In-Sourcing 

The disadvantages are - hiring for seasonal or project work, constant skills evolution requiring additional hiring or upskilling training. The initial cost gains may soon dissipate – hidden costs may increase and workforce removal or replacement - can be time consuming and cumbersome with local laws.  

Traditional hiring of additional headcounts to match with expanding operations and available budget. Preferred for key senior and mid-level positions, in-Sourcing builds expertise internally with higher management control and lower costs. 

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Co-Sourcing 

Co-sourcing is a partnership between a customer and an outside vendor usually a professional service provider. A company chooses the vendor, which works with and often alongside—but does not replace—the existing staff based on specific skills needed to get the job done. 

Key aspects

  • Professional firm with specialized skill sets--Audit, Tax, Legal, M&A, PMO, Data Management, R&D, Marketing, Legal and Executive Search.

  • Partnership -  Long term firm association with resource fulfillment on ‘as needed’ basis.

  • Resource continuity and Skills consistency - In fact, this is one of the key differences with general ‘consulting’, when the resources are rotated leading to inconsistent quality.  

Unlike outsourcing, co-sourcing does not replace the existing staff since they cater to the additional capacity or required specialized skill sets. 

Benefits 

  • Strategic - not just at senior level but at mid-level as well.

  • Long-term value added with cost savings .

  • Flexibility - Opportunities to ramp up or down with on-off site options .

  • Resource continuity provides lower training cost and down-time .

  • Short or Long-term engagements .

  • BOT – Build, Operate and Transfer Model. Co-source initially to build the model, and as the process matures, transfer it to internal or external outsourcing team. 

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Out-Sourcing 

Out-sourcing involves transferring a portion of work or even an entire process to outside providers or suppliers rather than completing it internally. 

Key aspects : Usually, Low value or repetitive, matured, high-volume tasks are outsourced to an external vendor. The benefit is cost savings either due to vendor’s expertise, technology, location arbitrage and/or lower labor costs. 

There are two main types of depending on the value advantage: 

  • Value based – For example, a company may outsource the manufacturing process to avoid high initial setup and headcount costs. As the process scales, they may internalize to save costs. 

  • Volume based – As the processes mature, companies can benefit from volume and scale when they can outsource it to a vendor, on or offshore, to benefit from lower costs. 

Offshoring 

Not to be confused with outsourcing) is when a company relocates a business process to another country to take advantage of the lower costs. The difference with outsourcing is while offshoring can be internal or external, outsourcing always involves an external vendor. Sample processes -- IT services, Manufacturing, Facilities Mgt, Transaction services, (HR/Financial), Order Management.  

Summary   

Companies can use a variety of strategies or even combine multiple strategies, depending on the process, maturity level, skills assessment, and costs.  

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