Should I Hire or Outsource?
Outsourcing should be avoided at all costs (pun intended). This is the theory that many companies hold today, but, honestly, it couldn’t be further from the truth - and here’s why.
When was the last time you had coffee? Did you make it, or did you go to Starbucks? Perhaps you’re more of a Dunkin’ fan. Regardless, if you’re one of the 150 million or so people who drink coffee in the US, the decision of going to a coffee shop or making coffee yourself surely crossed your mind. It turns out you just became a decision-maker in your own little supply chain - and it had everything to do with outsourcing.
Now, this isn’t a perfect example of outsourcing but you get the idea. On one hand, you can purchase a product or service from someone who specializes in that area. On the other, you can buy your own equipment (coffee grounds and coffee maker) and make your own. Here are a few key benefits of outsourcing:
• You will almost assuredly get a better service than if you tried to replicate what your vendor is capable of. You can always buy the equipment, but you can’t buy the experience, knowledge, open communication, processes, approved supplier list, culture, or intangibles of a good vendor. A good vendor who can deliver on quality, cost, and lead time is priceless in today’s ecosystem where customer expectations are higher than ever.
• Vendors can save you a ton of money (this is why coffee wasn’t a perfect example- because of how much coffee grounds can be marked up at an aesthetic, “instagramable” coffee shop- but I’m a big fan, so we used the metaphor anyway). For instance, every dollar you spend on an indirect operation required for your product (such as an Engineering firm trying to insource manufacturing) is a dollar that you can’t spend on being the best at Engineering. Outsourcing not only lowers overhead, labor, and indirect costs but also frees up cash flow to focus on your main product or service.
• A good network of vendors can increase your scalability. What happens when your business takes off? Demand skyrockets. Generally, businesses aren’t ready for an uptick in demand if they insource all operations of their business. This leaves customers waiting on lead times, or even worse, looking at competitors. Furthermore, there will be ebbs and flows in demand. If your business invests in new equipment and people to counter high demand, these costs will continue to impact your cash flow even as demand decreases.
It must be stated, however, that a vendor who doesn’t deliver on quality, cost, or lead time can hinder your company’s growth as well. Consistency in quality, communication, transparency, and delivery must be the main focal points in outsourcing your work. Nevertheless, a good vendor specializing in a process or product can offer something much better than a business with a focus elsewhere that is trying to insource an indirect process. Similarly, a coffee shop with good ratings will likely make a better cup of coffee than even the most scrupulous coffee snob.
The final and most important cost of not outsourcing is called opportunity cost. In other words, a business will need to invest heavily to offer an insourcing service with enough value proposition to compete with that of a good vendor’s services. The sheer amount of time, energy, and money a company must spend even to begin to reach this level of value is often overlooked. These resources should be used to improve your business’ main offering rather than reinventing the wheel for an investment that may not result in either the cost savings or quality that a specialized vendor can offer. The real question isn’t how much will insourcing cost, but how much opportunity for growth will insourcing cost?
Hopefully, this article highlighted the benefits of outsourcing indirect processes in your company’s operational supply chain. The moral of the story is to find the good vendors and treat them as if they are irreplaceable because oftentimes, they are. Finding a good vendor can help grow your business faster and more sustainably than almost any investment you can make. As a machine shop, we see this on a daily basis, and it’s clear that the companies who trust us with their machining tasks are the ones who are leading their industries.
Now, who’s ready for some coffee?