Running Head: OUTSOURCING 1
What Happens When You Outsource Too Much?
BUSI 613: Supply Chain Management
Emily Stogner
Liberty University
Author’s Purpose
WHAT HAPPENS WHEN YOU OUTSOURCE TOO MUCH? 2
The business industry has seen a massive shift in the outsourcing of activities and
functions within the supply chain. Is this for the betterment of the company? Outside suppliers
are necessary for specific components of the supply chain such as design and engineering of
parts, or creation of parts for systems. However, when too much power is given to outside
sources, the company loses power over some of the decision process (Zirpoli & Becker, 2011).
Businesses must take a look at these outcomes in order to make the best decision for their
company. On one hand, businesses benefit from having outside suppliers who are experts in
specific parts of their products but on the other hand, relinquishing too much control over the
business can increase decrease the amount of knowledge management knows about their product
and how to design more products in the future.
Application
One area of application for outsourcing is the marketing industry. Cohn Marketing began
outsourcing soon after their creation in 2000 (Pentila, 2000). Jeff Cohn, the creator of the
marketing firm, believes that outsourcing can enable management to focus on the core problems
of the business. He has begun outsourcing tasks to outside firms for many of his business
functions, specifically “media-buying, accounting, and copywriting” (Pentila, 2000). This is one
example of how outsourcing can help a business.
Another area of application is in the technology industry. Hewlett-Packard outsources
their warehousing maintenance to a business called Roadway Logistics in Vancouver, Canada
(Young, 2017). Roadway Logistics manages the inbound raw materials sent to that specific
warehouse and coordinates pick up and storage. “Hewlett-Packard reports savings of 10 perent in
warehousing operating costs” (Young, 2017). However, a problem they could face in the future is
the consequences of losing control of storage and delivery logistics. This would become an issue
WHAT HAPPENS WHEN YOU OUTSOURCE TOO MUCH? 3
if something were to happen in that level of the supply chain. It would not be as easy to assess
the problem and solve it due to having it outsourced.
Background of the Issue
Outsourcing occurs when a business decides to hire out for a necessary function instead
of hiring position(s) to do it inside. An example that Young (2017) gives in the textbook is a
business hiring a janitorial firm to clean offices instead of hiring in-house janitors (Young, 2017).
Businesses who choose to do this find that it opens up more man power to focus on specific in-
house activities, increases return on investment, and allows firms with specific expertise to focus
on aspects of products that they specialize in (Tsay, Gray, Noh, & Mahoney, 2018). Businesses
no longer ask what to outsource but if they can outsource. According to a study done of the
implications of outsourcing, “Whether a manufacturer is looking to scale up quickly, expand
globally, or focus on core competencies, outsourcing can provide these capabilities” (Tsay et al.,
2018). In order to outsource successfully, businesses need to look at assessing the importance of
outsourcing and the risks involved, looking at the local business market to find firms to work
with, determine the operations that must reside in-house in order to maintain control and decide
how comfortable you are with outsourcing the task, and calculating the return on investment
(Pentila, 2006). There are many benefits to outsourcing, especially for large businesses; however,
the decision should not be made lightly due to the consequence of giving up too much control of
the business.
Managerial Implications
When it comes to outsourcing, managers should take full advantage of the financial
benefits to giving parts of the supply chain to outside firms. However, before doing so managers
should review the risks and analyze how much control they are giving up and how the return on
WHAT HAPPENS WHEN YOU OUTSOURCE TOO MUCH? 4
investment would change. Not only could loss of control be an issue but businesses could be
exposed to supplier risks, extra charges for outsourcing, constrained by outdated technology or
other firms timelines, and supply restraints (Young, 2017).
Managers should analyze the balance between delegating tasks to outside firms and
keeping strategic tasks in-house in order to have control over the future design and major
decisions for the business. This is especially true for companies that have complex products with
many parts that could be outsourced. The main question managers should ask is “Just because it
can be outsourced, should it be?”
Managers should also understand that loss of control does not happen with a singular
outsourcing decision. Outsourcing functions, especially technology parts, can definitely be in the
firms best interest but if managers do not keep up with the ever-evolving changes with that
specific technology, they risk giving up more control to the outside firm due to lack of
knowledge. This can be avoided by continuous learning opportunities for management within the
supply chain.
Summary
Outsourcing has its benefits and consequences. When a business begins facing
outsourcing opportunities, they must take careful steps to make sure it will ultimately benefit the
company instead of hindering it from future growth. Even if it shows an increase in financial
gain, some outsourcing decisions should be avoided due to loss of control, specifically of design
knowledge and attention by senior management (Young, 2017). Businesses who decide to
outsource should create a checklist for how well the decision fits their business plan. This
checklist can be applied to all outsourcing decisions and can streamline the process to make sure
they are making the right decision. This will also reduce the amount of outsourcing decisions
WHAT HAPPENS WHEN YOU OUTSOURCE TOO MUCH? 5
made when all that was required was “better delegation, communication or technology” (Pentila,
2006). Increasing your bottom line is the final goal. Therefore, if a business finds outsourcing to
be the solution for that then they should strategically make those decisions accordingly.
References
Pentila, C. (2006). Out with it: When growing your business, you know you can't do it all on
your own. but could you be outsourcing too much? Entrepreneur, 34(3), 78.
Tsay, A. A., Gray, J. V., Noh, I. J., & Mahoney, J. T. (2018). A review of production and
operations management research on outsourcing in supply chains: Implications for the
WHAT HAPPENS WHEN YOU OUTSOURCE TOO MUCH? 6
theory of the firm. Production and Operations Management, 27(7), 1177-1220.
doi:10.1111/poms.12855
Young (2017). Supply chain management (Custom ed.). New York, NY: McGraw-Hill
Create. ISBN: 9781309072783.
Zirpoli, F., & Becker, M. (2011). What happens when you outsource too much? MIT
Sloan Management Review, 52(2), 59-64. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/845235674?accountid=12085
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