Insourcing, outsourcing, and offshoring

It’s hard for a company to be successful when it tries to be a jack of all trades.

Instead, each company needs to figure out which characteristics make it truly

valuable in a supply chain. In the context of supply chain management, your core

competencies are the things that your company can do better than others.

Core competencies determine your competitive position in a supply chain.

Companies usually focus on building their core competencies through research

and development and through continuous process improvement. Generally speak-

ing, any work that’s directly related to your core competencies should be done by

employees working for the company. In other words, this work should be insourced.

Some work is important for your company but isn’t a core competency. Other

companies can do that same work better, faster, and cheaper than your com-

pany can. Because this work isn’t your core competency, you may be better off

outsourcing that work to another company.

In some cases, there are good business reasons to offshore work  — take work

that’s being done in one country and move it to a different country. Offshoring can

reduce costs and improve quality, as well as allow your company to access talent

and open new markets.

Offshoring can also create challenges. Longer supply chains lead to higher

transportation costs and the need to carry more inventory. Communication and

coordination become more difficult when people are separated by distance, time

zones, and languages. Offshoring can also create complex challenges for protect-

ing intellectual property and complying with government regulations.

Your company may have decided a few years ago that offshoring made sense, but

because of changes in the market, offshoring no longer provides the same benefits

to your supply chain. In that case, you may decide to move the work from a foreign

source to a domestic source, which is called reshoring.

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