Outsourcing VS. Insourcing: Which Is Better For Your Business?

In the world of manufacturing, there exists a long-debated issue concerning outsourcing and insourcing. Many manufacturing professionals view outsourcing as the ideal cost-cutting measure, while others see insourcing as a more efficient way to meet company standards. Then again, there are organizations that enjoy employing a mix of both methods to drive business. So which is better for your business? Let’s start with defining each.

What are the differences between outsourcing and insourcing?

Outsourcing, as mentioned, is heralded as a great way to cut costs. It is the process of hiring a workforce outside of the organization in order to perform certain tasks. By using resources from outside of the business to handle the performance of certain services and the manufacturing of certain products, a company can focus on their core competencies. When an organization’s non-core activities are outsourced, it can better its efficiency and boost its productivity.

Insourcing, by contrast, is the process of assigning tasks to employees within a company instead of hiring outside talent or other firms to complete the work. Of course, the hiring, training and compensating of company employees for this process adds to the costs incurred by the business. Because insourcing is the more expensive route, it may not necessarily help a company’s bottom line. However, proponents argue that the completion of tasks in-house ensures company-approved quality.

Why is outsourcing an ideal choice for start-up businesses?

As we’ve outlined, outsourcing is a big-time money saver. For new and smaller companies it’s a sound decision to focus on the core aspects of their businesses. At Flux Connectivity, we work diligently to ensure that our customers receive the highest-quality manufacturing solutions while lowering their soft costs.

As Laura Cole explains on Business2Community.com, the cost difference between outsourced and insourced manufacturing is the single most important consideration for start-up businesses. This is because such companies are likely to have fairly restricted budgets.

“Insourcing is typically more expensive in developed nations such as the U.S. and the UK,” writes Cole, “This is due in part to a higher minimum wage and improved worker regulations, which dictate that employers must invest more into salaries and the cultivation of a safe and functional working environment.”

It’s important to consider your opportunity costs.

As we pointed out, many firms believe that manufacturing their products in-house will help to drive higher levels of quality. And while you may feel it worthwhile to be self-sufficient, applying an alternative route may pay dividends in the long run. An opportunity cost refers to the value of using the next-best alternative. This is especially important for companies that have limited resources.

Remember that value isn’t always monetary. While you may be forfeiting the benefits associated with in-house production, your alternative course of action may be what is necessary to strengthen your organization’s bottom line. What is the best way to determine the value of an opportunity cost? Subtract the return on the option you’ve chosen from the return on the best option that was not chosen. Can outsourcing help to grow your business?

For more information about how Flux Connectivity’s manufacturing solutions can cut costs and ensure top-quality results for your company, please don’t hesitate to give us a call at 1-800-557-FLUX or email us at connect@fluxconnectivity.com.