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In today’s fast-paced business world, companies are always searching for ways to maximize efficiency and save costs. Two strategies that have been widely debated in effectively addressing challenges in business operations are outsourcing and backsourcing.
But what exactly are these practices, and which one is truly better for your company? In this blog post, we dive into the nitty-gritty of backsourcing and outsourcing to shed light on the pros and cons of each approach and help you make an informed decision for your business.
Backsourcing is when a company brings back certain business processes that were previously outsourced, to be handled in-house again. Often associated with reshoring, the whole backsourcing operation is credited for the reshoring of over 1.7 million jobs to the US since 2010, with high-tech industries driving the movement at 88% of the total numbers.
Some backsourcing process examples include a shoe manufacturing company where they might outsource the job of making the shoes to a factory in China. For instance, they might decide to bring that job back in-house, or backsourcing it, if they want more control over the production process or want to save money.
Given the unique terms of this solution, using backsourcing is a more common strategy in specific lines of business. Some industries that commonly use backsourcing in their BPO (business process outsourcing) strategies include:
Companies in the manufacturing industry often use backsourcing to bring certain processes, such as assembly or production, back in-house. This can be done to improve efficiency, maintain control over key processes, or address issues with quality or delivery from external providers.
Retail companies may use backsourcing for processes such as customer service, inventory management, or e-commerce operations. This can help them to better control the customer experience and ensure that inventory is managed effectively.
Financial services companies may use backsourcing for processes such as accounting, risk management, or compliance. This can help them to better control sensitive financial data and comply with regulatory requirements.
Healthcare companies may use backsourcing for processes such as patient care, medical billing, or claims processing. This can help them to better control the quality of patient care and ensure that medical billing and claims processing are handled accurately.
IT companies may use backsourcing for processes such as software development, network management, or data analytics. This can help them to better control key technology processes and maintain a competitive edge.
Telecommunications companies may use backsourcing for processes such as customer service, network management, or billing. This can help them to better control the customer experience and ensure that networks are managed effectively.
Government agencies may use backsourcing for processes such as procurement, human resources, or logistics. This can help them to better control costs and ensure that key processes are managed efficiently.
Automotive companies may use backsourcing for processes such as manufacturing, supply chain management, or logistics. This can help them to better control key processes and ensure that vehicles are manufactured and delivered on time.
Backsourcing can have a number of impacts on the workforce and job market. One potential impact is that it can create new job opportunities in the domestic market, as companies bring back jobs that were previously outsourced. This can be particularly beneficial for workers in industries that were hard hit by outsourcing, such as manufacturing and certain types of service jobs.
Another potential impact is that it can lead to higher wages and better working conditions for workers, as companies may be willing to pay more for labor in the domestic market than they would for outsourced labor. However, backsourcing can also have negative impacts, such as job loss for workers in countries where jobs were outsourced to. Additionally, it can also increase production costs for companies which may lead to increased prices for consumer goods.
For organizations in other industries (or even for those in the ones listed here), outsourcing is another solution that is utilized to minimize operational costs and maximize overall business success. Now, let’s discuss backsourcing and its key differences with outsourcing to better understand both solutions.
Outsourcing is when a company hires another company, often located in a different country, to handle certain business processes for them. So In essence, outsourcing is when a company gives a job to another company to do, and backsourcing is when a company takes a job back and starts doing it themselves again.
Companies should weigh the potential benefits and drawbacks of each strategy and determine which option is best for their business. Here, we’ll cover all the essentials of backsourcing, so you can make an informed decision and identify whether it’s the right solution for addressing business problems and supporting your ongoing success.
Businesses opt to backsource for several reasons, often based on unique business goals or changes within the company. Whatever they may be, backsourcing can have a number of benefits for businesses, such as these 7 key advantages:
Backsourcing a previously outsourced function can result in lower wages and benefits for workers, as well as lower overhead costs for the company. By bringing production or manufacturing processes back in-house, a company can reduce the costs associated with outsourcing, such as shipping and logistics expenses, and currency exchange rates. This can also help to reduce costs associated with labor laws and regulations, which can vary greatly between countries.
Backsourcing allows a company to quickly adjust to changes in demand for its products or services. By having more control over the production process, a company can respond more quickly to changes in customer demand and market conditions. This can help to keep inventory levels low, reduce lead times, and improve overall efficiency.
By bringing production or manufacturing processes back in-house (or another business function, for that matter), a company can have better control over the quality of its products or services. This can help to reduce the risk of product defects and improve customer satisfaction. Additionally, by having more control over the production process, a company can better protect its brand reputation.
By backsourcing, a company can gain a competitive edge by being able to respond more quickly to market changes and customer needs, as opposed to other organizations in their niche . This can help to improve the company’s overall competitiveness by allowing it to offer more innovative products and services, and respond more quickly to customer demand.
By integrating backsourcing into the business model, a company can better protect its proprietary technology and intellectual property. When production or manufacturing processes are outsourced, there is a risk that intellectual property may be stolen or misused. By bringing these processes back in-house, a company can get more operational control to better protect its proprietary technology and intellectual property.
By bringing production or manufacturing processes back in-house, a company can better manage its relationships with suppliers and vendors. This can help to reduce dependency on any one supplier and improve supplier performance. Additionally, by having more control over the production process, a company can reduce the risk of supply chain disruptions.
With backsourcing, the IT department can be integrated with the business, leading to a more efficient and effective organization. This can help to improve communication and collaboration between the IT department and the rest of the company, and ensure that IT is aligned with the company's overall business goals and objectives.
If these items on the list are among your top priorities, then it might be time to consider backsourcing for your business. However, it can also come with some risks and challenges. Let’s now discuss the cons of backsourcing.
Backsourcing does have a number of risks and challenges that companies need to be aware of and consider before making the decision to backsource. These include:
Backsourcing may involve working with teams in different countries, which can lead to communication and cultural differences that can hinder productivity and lead to misunderstandings. This can lead to delays and errors in completing tasks, and can also cause frustration and dissatisfaction among team members.
Ensuring that the quality of work being done by the backsourced team meets the company's standards can be a challenge. This is particularly true if the backsourced team is located in a different country and is not familiar with the company’s processes and procedures.
When work is outsourced, the company may lose some control over the process and may have difficulty monitoring the work being done. This can lead to delays and errors in completing tasks, and can also cause frustration and dissatisfaction among team members.
Depending on your specific circumstances, backsourcing can be more expensive than outsourcing, due to factors such as transportation, accommodation, and salaries. This can make backsourcing less cost-effective for companies, particularly for those that operate on tight budgets.
Backsourcing may involve sharing sensitive company information with third parties, which can raise concerns about data security and privacy. This is particularly true if the backsourced team is located in a different country and is not familiar with the company's data security and privacy policies.
Backsourcing may also be subject to political and regulatory risks, such as changes in laws and regulations that can affect the company's ability to operate in a particular country. This can lead to uncertainty and unpredictability in the business environment, which can make it difficult for companies to plan and make decisions.
Finding qualified workers to fill backsourced positions can be difficult, especially in certain industries or regions. This can lead to delays and errors in completing tasks, and can also cause frustration and dissatisfaction among team members.
While these challenges are inevitable, it’s important to know about the industry practices that will empower you as you adopt a backsourcing strategy.
If you want to bring back business functions that have previously been outsourced to your in-house team, here are the steps you can take to ensure smooth transition:
When transitioning to backsourcing, it is essential to maintain quality control in order to ensure that the transition is successful. The best practices in the industry for ensuring quality control include:
Since each one of these solutions serves as an alternative to the other, among the most commonly asked questions is: which among them is actually better?
Let’s address this once and for all. Ultimately, the answer depends on your priorities and goals as a business.
Outsourcing is a cost-effective strategy for businesses looking to take advantage of lower labor costs in other countries. For example, companies can outsource customer support operations to countries like the Philippines where labor costs are lower. This can help the company save money on labor expenses, which can be significant, especially for businesses with a high number of employees. Outsourcing also helps a company to focus on its core competencies. By outsourcing non-core functions, such as back-office functions or creative design services, a company can free up resources and focus on its core business activities. This can lead to increased efficiency and productivity, as the company can devote more resources to its core operations.
Backsourcing, on the other hand, can be more expensive than outsourcing. When a company brings work back in-house, it may have to pay higher labor costs, which can negatively impact the company's bottom line. Also, backsourcing may require the company to invest in new equipment, facilities and other infrastructure. However, backsourcing can provide more control and oversight on the work being done. When a company outsources, it may have less control over the quality of the work being done and the processes used to complete it. By bringing work back in-house, a company can have more control over the work being done, which can lead to higher quality work. In conclusion, the decision to outsource or backsource will depend on a company’s specific needs and goals.
If you’ve ultimately decided that the best move for your business is still outsourcing, that’s where we can help you.
Start optimizing your business operations and experience improved operational efficiency for your company. Work with a trustworthy service provider who can handle your non-core business tasks while you concentrate on what is most important for your company.
KDCI, a top outsourcing service provider based in the Philippines, is ready to assist you in scaling up your manpower without breaking a bank. We provide flexible staffing solutions in various industries, including customer service, Ecommerce, digital marketing, and accounting.
Let us help you assemble an excellent offshore team in the Philippines so you can meet your customers’ requirements and enhance your overall financial performance. Click the button below and get a FREE consultation with our experts today!
