Outsourcing or In-House Manufacturing?

The answer to the question about whether it is better to outsource certain components or to manufacture them in-house depends on several factors; in some circumstances, one option could be better, whereas in others it may be worse.

There are several main reasons for outsourcing, such as the requirement to use highly specialized skills, or specific equipment or facilities to produce a service or component; or limited needs in a certain product/service (if these needs are seasonal, temporary, or otherwise limited) (Traxler, 2012). For example, McDonald’s focuses on fast food restaurants and is, largely, a franchise business; it would be inconvenient, too costly, etc. for this organization to create all the products used in their food (such as meat, vegetables, spices) on their own, and the company would also lose its focus if it chose to open e.g. farms. Thus, McDonald’s prefers to outsource the creation of products to their suppliers rather than use in-source supply chains. A similar situation occurs if the needs in the product/service are limited. For instance, personal observations show that if e.g. a fridge manufacturer proposes a special offer, such as “purchase a fridge and get a free sweater with our logotype,” they will use an outside supplier to create the t-shirts rather than purchase a clothes factory. Similarly, a company would probably want to outsource a graphics designer if they need to redesign their website, but only once.

Nevertheless, outsourcing may be inappropriate if an organization has the required capabilities to produce the needed components, or if the need for these components is constant and it may be more profitable for the organization to manufacture them on its own rather than purchase them from outside. For instance, Tesla, Inc. does not need to outsource the production of lithium-ion batteries for its electric cars; it has decided that it would be better to build its factory because the company’s need for these batteries is constant (Tesla, n.d.).

Thus, outsourcing may be a good idea if the need in the service/component is limited or requires unavailable, highly specialized skills or equipment, and maybe a bad idea in other cases.

References

Tesla. (n.d.). Tesla Gigafactory. Web.

Traxler, D. (2012). Outsourcing v. hiring in-house: Pros and cons. Web.