Outsourcing 101
March 27, 2010 6:33 AM   Subscribe

What services do medium and large companies typically outsource (locally, not in India or China)?

I'm trying to come up with a list of activities that companies typically outsource locally - I'm not talking about shipping IT jobs overseas. The more detail you can provide about the process, the better, e.g.:

- what is the benefit of outsourcing it?
- how do they select a vendor?
- who is responsible for the outsourcing?
- what are typical frustrations in the outsourcing process for companies?
posted by OctopusRex to Work & Money (23 answers total) 6 users marked this as a favorite
 
Advertising is a prime example. Most companies of this size will use an independent advertising company, rather than designing and distributing ads themselves.
posted by spikeleemajortomdickandharryconnickjrmints at 6:34 AM on March 27, 2010


Printing (envelopes, letterhead, invoices, brochures, etc.)

Most medium (and even larger) sized companies don't have the volume to make high-end copier/printers a decent investment.

Our company has a relationship with a printer now, but the basic process was to call the ten largest ads in the phone book (this has been a while back, obviously) and tell them we wanted a quote for x amount of print jobs. Seven of them got back to us, four were competitive, and one got the job. That company's been doing our printing work for the last twelve years.

The office manager was the first person to do the outsourcing (she was responsible for getting the office products delivered as well).

I have to speculate on the frustrations, because our vendor is very, very good and after so long is used to our quirks, but mostly the problem with outsourcing anything is the requirement to be extremely specific about what is required and needed for the contract. "If you didn't ask for that, it's extra" should be printed in 20-point bold italics at the top of any vendor contract.
posted by Pragmatica at 6:43 AM on March 27, 2010


These days companies outsource (homesource?) a tremendous amount of activity. Here is a list that I've done in the last year alone.

Lead generation is a big one. There are companies, often focused on particular vertical markets, that will work with your company to come up with call scripts and then do all the cold calling. They charge by the hour, and are measured by how many appropriate meetings they set up with your sales reps.

Marketing art is a big one. PowerPoint deck scrubbing, icon drawing, web art creation, video creation, etc. etc. etc. There are companies like CGI Interactive that have been around a while and this is their wheelhouse.

Marketing writing is another. I've often just outsource the writing to specific individuals in the tech writing space that I've worked with over the years, but there are firms that do this as well. They typically charge by the length of what you're writing.

Search engine optimization, search engine marketing. HUGE. Companies pay third parties tons of money to get this right.

I'm in software, so tech delivery is a big one. That is, we sell a product, but some third party systems integrator will do the on-site installation/implementation. I bet this pattern exists all over the place.

Legal activities. Unless you're a relatively big company, you probably don't have a full-time in-house lawyer, or maybe you have 1 but are still relying on outside firms for anything irregular that comes up.

Ever see Office Space? Consultants of that ilk are pretty common for companies that are somewhat stuck and looking for a way to greater growth. There's actually a whole category of productivity consultancies as well. Guys that walk around and notice that your employees are spending too much time doing X, and then fix it. Planet Money had a podcast interviewing one of these guys about a month ago.

Event management. If you have a user conference, or are throwing a show of any size, you are not going to do it all yourself. There are people and firms that specialize in event management. I have one woman I've been working with for years that I depend on completely for this.
posted by kryptonik at 6:52 AM on March 27, 2010 [1 favorite]


File storage. The company picks up the file or delivers the ones we need.

Cons: Not having the file you need at hand.

Pro: Not wasting expensive office space on files that haven't been used in several years, but are required to keep.
posted by JujuB at 7:05 AM on March 27, 2010


If you're looking for background on why some things are done within the boundaries of the company and some things are done outside or outsourced, here's an economics podcast discussing the theory of the firm:

http://www.econtalk.org/archives/2008/01/munger_on_the_n.html

You can read through the show notes, but the podcast itself is about an hour long.
posted by chengjih at 7:08 AM on March 27, 2010 [1 favorite]


Facilities management. This includes the whole range of services from daily/weekly/monthly janitorial services, to painting, carpeting, furniture and fixtures acquisition, and even decorating, to the point of obtaining wall art. Also, lease negotiation, space management (finding optimal uses for existing space, managing space needs as various parts of the business grow or shrink, finding new space when needed, finding new tenants for unused space, etc.), trash hauling, off-site records management, paper shredding, municipal inspections and code compliance, and energy management/"green" initiatives.

The benefit of outsourcing it is usually to save money and aggravation. Nobody wants to be responsible for cleaning the boss's office, or even for the janitors who do the actual work.

Vendors are usually selected on the basis of annual contract bid, and local or national reputation.

Vice-President of Operations or Chief Operation Officer usually has ultimate authority for selection and management of facilities management group, with budget approval by CEO, or board. VPO/COO usually delegates day to day supervision of janitorial teams, and sub-vendors to subordinate personnel.

Typical frustrations with facilities management vendors are janitorial performance, theft, and unforeseen cost management (like discovering that the 100% wool decorator beige carpet the CEO wanted for the main lobby needs to be steamed cleaned twice a month, to keep from looking like a cattle drive just went through).
posted by paulsc at 7:12 AM on March 27, 2010 [1 favorite]


A lot of hospitals/medical sector businesses will outsource to a uniform rental and laundry service for some things (maybe for the operating room but not for general practice, or maybe just for lab coats, etc.). The big one around here is Cintas ("the uniform people"), I see their trucks on the road all the time.
posted by anaelith at 7:16 AM on March 27, 2010


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posted by netbros at 7:26 AM on March 27, 2010


Machining. We have a small machine shop in our building to make some prototypes and test fixtures, but anything over a certain size or with requirements for special methods of manufacture (like laser or water jet cutting) is outsourced to any of several larger machine shops in the area. The shops used are chosen by either recommendation, the fact that they are the only one in the area that are able to do what we need, or giving them a small trial run of parts to make. Sometimes the projects are outsourced because the throughput of our small shop is pretty small with just one guy working in there, and the engineer wants his part before our machinist can get to it. Possible drawbacks are the loss of physical control for new designs, and also the shipping time back and forth if the design needs to be machined, tried out and machined again until it works, which is pretty common.

Distribution networks can also be outsourced, as in car dealerships.

another thing that is frequently outsourced is on-site security services.
posted by ArgentCorvid at 7:41 AM on March 27, 2010


Instructional design/education -- that is, developing classroom courses and on-line tools to teach customers how to use your products. I used to work for a software company that still did this in-house, but we were a dying breed (the company got swallowed up by a larger fish long ago, anyway).
posted by hiteleven at 7:51 AM on March 27, 2010


US gov't, DoD. On the Navy base where I work, we contract out groundskeeping, snow removal, cafeteria services, janitorial services, and some IT services.
posted by fixedgear at 7:52 AM on March 27, 2010


A big benefit of outsourcing? Why hire and pay people on your own payroll to do something, when a specialist can utilize economies of scale and market intelligence to do it better, at no additional cost to you?

I build and execute outsourced procurement programs for large organizations. Why send the business to my company? Well, I can put buyers in place at the client site to work with the client, have my legal team write the contracts for the suppliers, have a supplier compliance group focused on making sure their performance and insurance meets our criteria, and push all the invoicing and payment through to my back office A/R (from the client) / A/P (to the suppliers) people.

I can do it more efficiently than the client can, because my back office people work for my client, and a dozen others at the same time. The same work the client would pay a full-time A/P person $40k/year to do is done for twenty clients on my end by the same $40k/year person. My client isn't asking their own legal team to write and negotiate contracts, not hiring a compliance auditor, and not deploying buyers out across their sites to handle these transactions. In headcount alone, I save my client roughly $200k/year, were they to want to push this work back in-house.

I can also do it better than they can, as my organization specializes in deploying the market intelligence necessary to buy at or below market prices. Left to their own devices on pricing, the client only has their own past history to consider, or a huge and expensive research project to engage. If they put my team in place, this intelligence on the market is not only provided free of charge, but helps them realize immediate savings compared to how they used to buy things before.

I do all this profitably by charging the suppliers a slim percentage of every dollar they bill. Since the supplier also sees greater efficiencies (more access to business in a centralized procurement environment, faster payment), and since I'm creating a competitive supplier marketplace, decreasing prices through market intelligence and competition, my client effectively pays nothing for this solution, even if the supplier technically marks up their offering to include my fee.

In short, I'm an outsourcing consultant, and I can buy my commodity smarter, better, and cheaper in a more efficient and transparent way than nearly any large company could do on their own. That's why companies outsource, in most cases. Smarter/better/cheaper/efficient/transparent.
posted by GamblingBlues at 7:58 AM on March 27, 2010


Cleaning and Catering.
posted by adamvasco at 8:02 AM on March 27, 2010


That big IT project to do with SAP or some other specialised product that no-one inhouse wants anything to do with.
posted by Artw at 8:27 AM on March 27, 2010


Paper shredding.
posted by Drasher at 8:29 AM on March 27, 2010


landscaping

trash collection
posted by amtho at 9:19 AM on March 27, 2010


Check processing (paper and electronic). My sister works for a check processing company and she tells me how many people call to complain about the payment accuracy or timing, and they threaten "I'm going to start doing my business directly with XYZ bank" and she just laughs - her company also processes the checks for XYZ bank.
posted by CathyG at 11:50 AM on March 27, 2010


Payroll. My current job is one of the first I've had where ADP wasn't processing my payroll (and I know for a fact that ADP used to process my company's payroll). Smaller businesses use Intuit's payroll services a lot, too.

The benefit of outsourcing it is that payroll laws are complicated and it's nice to have someone deal with it who knows the ins and outs. Pretty much the same reason that you would hire someone to do your taxes for you.

Recruiting is also commonly outsourced, at least in the tech sector. I guess if you're a company that hires tons of people, it's nice to have someone who just deals with the sourcing, interview scheduling and travel booking, takes care of the legal aspects, does the background check, etc. I suppose it's easier to outsource this if only because then when the economy is slow and you don't want to hire as many people, you don't have to fire a bunch of FTEs. Google got some bad press because they did their first mass layoff last year - and the layoff was of 100 or so full-time recruiters. Their competitors who outsource recruiting just declined to renew the contracts of their recruiters, and nobody was the wiser.
posted by little light-giver at 2:50 PM on March 27, 2010


Bulk mail.
posted by nestor_makhno at 3:02 PM on March 27, 2010


I have no insight on what the company gets from outsourcing these functions or how they did it, but here are some things I've seen outsourced locally/domestically (at my very large employer): some HR functions, management of the cafeteria, management of the on-site copy shop and copy machines, and on-site desktop PC support.
posted by cosmic.osmo at 3:05 PM on March 27, 2010


A lot of online stores outsource their order fulfillment and shipping. GSI Commerce is probably the biggest (they serve NFL and MLB, among others).
posted by phunniemee at 8:30 PM on March 27, 2010


I used to work for a plastics manufacturer. We had our own tool room which was capable of making some molds, but very complicated ones would have taken too much time, and very large ones would have taken handling equipment we didn't have. So they were contracted out. Besides that, there are a whole lot of industrial processes that are somewhat specialised, like heat-treating and surface-treating metals to give them particular characteristics. It makes much more sense to contract these things out than to, e.g., have the equipment for annealing delicate tools in the machine room.

Besides this, when we had orders that took a lot of special handling (take parts A, B and C, fit them together, vibration weld part D on the top, pack them four to a little carton, wrap it, label it) we contracted that out too. It's amazing how many businesses exist solely for the purpose of handling part of your manufacturing process, and the flexibility with which they will switch between different processes.
posted by Joe in Australia at 9:43 PM on March 27, 2010


- All cleaning and maintenance activities are outsourced in my firm. The FM team is inhouse and is shared across a number of locations and it's up to them to organise the third parties and arrange and supervise whatever needs to be done. I assume they go through some kind of tender process and I know they are hauling the managers of the cleaning company in regularly to ensure they understand our requirements and instruct their teams accordingly. The only pattern for maintenance guy is that he only comes once the lsit of tasks is long enough to make a day's worth of work.

- We do have domestic service centres which do what is now called document preparation and used to be typing, as long as it's more than three pages of text as we are after all self sufficient and can type any less ourselves. They are very good when they do get round to doing stuff but the last deadlines I set (just over a week from submitting the work to them) were missed by over a week and nobody bothered to communicate to me that my deadline would not be met and when I might receive the work. So it's often much easier to just call in a favour from local support staff or to get an entry level technical person to type it and the support staff to format it properly.......

- We also use offshore service centres for the more basic elements of our core activities, which apparently increases efficiency and reduces costs...or not, by the time we've reperformed the review of that work or even redone it from scratch because they didn't get what we wanted them to do and didn't think to ask us to clarify but that's another story entirely!
posted by koahiatamadl at 6:41 AM on March 28, 2010


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