Insourcing and Outsourcing in Business - Report Example

Introduction: With this brief report we would be discussing the business terms outsourcing and In-sourcing. What do they mean and why does a company need to source outside it’s own manufacturing firm for a particular product or production operation. In order to understand the process and requirement; Pakistani Textile Industry is discussed in particular Al-Karam Textile Mills (Pvt) Ltd; considered to be one of the leading textile goods manufacturing companies in Pakistan. Outsourcing Outsourcing is a business term in which one business provides services for another business that could also be or usually have been provided in-house. Outsourcing is a trend that is becoming more common in textile industry in Pakistan and other industries in particular the IT industry for services that have usually been regarded as intrinsic to managing a business. In some cases, referring to the IT sector the complete information management of a corporation is outsourced, together with planning and business analysis, installation, management, and servicing of the network and workstations. [1] Why do vendors outsource? The question that why do manufacturing firms outsource for their product completion can be answered as follows: [2] The company does not have time to cater a specific product or its production operation but still wants to execute and associate the product with itself. It then thinks of outsourcing certain or complete operations of its production. The company lacks finance and so looks for an outsource, which is catering at a much lower cost. When a manufacturing firm lacks a skill to execute a certain requirement of production, it then takes an option of outsourcing a particular operation or the order as a whole. Advantages of Outsourcing Since outsourcing gives an opportunity to work with the best talents, skill available; it thus gives a technical and functional edge on the competition. Not forgetting that it also minimizes a substantial capital investment. Outsourcing is not only a useful way to lower manpower and training costs but also reduces operating costs, reduces cost of acquiring technology, improves speed of operations and give an opportunity to provide value added services. [3] In-sourcing: In-sourcing is a business terminology which is referred to a specific job requirement or production operation that would rather have been assigned out of the vendor’s production facility to an outsourcing company; is executed within. In-sourcing frequently requires recruiting specialists to fill short-term needs onsite by the vendor. Another category of in-sourcing involves a vendor to acquire new equipment or educate on hand staff to carry out jobs that or else had been outsourced. Such type of in-sourcing may involve extensive guidance of existing workers for the tasks. [4] In another meaning of the word, in-sourcing is outsourcing as seen in reverse. For example, a business based in Pakistan might open a plant in the Bangladesh with the intention of employing Bangladeshi workers to manufacture Pakistani products. From the Pakistani point of view this is outsourcing, but for Bangladesh it is in sourcing A lot of textile entrepreneurs in Pakistan are initiating this practice to take advantage of the cheap labor cost and the other costs of doing business in Bangladesh, which are curatively lower in Bangladesh and becomes as a reason to outsource for Pakistani Businessmen. The Pakistani Textile Industry [5] Pakistan is among the world’s top producer of Home Furnishing textile materials. The country’s textile sector caters to big American buyers in huge quantities. These customers include names like the Wal-Mart Stores, Target Stores, JC Penny, Macy’s Stores and many more. Like all other businesses running around the globe, the basic idea behind Pakistani textile exports is to make money. The textile sector in Pakistan is privately owned and thus entrepreneurs in a quest to make the maximum out of the opportunity try to adhere to customer’s requirements to increase their list of clienteles. In order to win orders, a vendor needs to meet all product specifications of the buyer; certain operations in product development require expertise or technology which is not essentially available in a company’s in house facility. These need to be out sourced! Recently Al-Karam Textile Mills in Karachi has acquired 6 comforter quilting machines after witnessing a resurge in demand of Bed in a Bag and Room in a bag items. Before this acquisition; the mills used to sell only comforter shells to the USA where they were filled with Polyester Batting and quilting by the Buyer in facilities in the US. Though Al-Karam Textile Mills is considered to be a well known name in producing Flannel Products for Home Furnishing; a lot of flannels are prepared in outsourced companies besides producing them in house. Mr. Badr Mir, Marketing Manager, Al-Karam Textile Mills, give cost and over capacity; a reason for their flannel out sourcing. “The raising machines which we outsource from various suppliers give us equivalent results as that being carried out in house but at reduced rates which costs us less than what we do in our own facility” says Badr Mir We have an in house,10,000 meters a day production capacity to produce flannel fabrics and there are time when we need to produce more than 40,000 meters a day to cater to a certain order; that’s where we move a portion of our goods out for out sourcing!” he adds. Al-Karam Textile Mills, besides outsourcing Flannel fabric sometimes also use outsourced dyeing machines to dye certain fabric. Mr. Kashif Abbasi who works as a senior merchandiser in the factory says, “There are lots of dyeing techniques, which a customer requires in the product which we cannot produce despite of a very good and State of the art dyeing plant but there are lots of units around in the city which cater to such techniques; instead of acquiring a massive machine that can cost a company a lot with no guarantee of future orders for such programs, we prefer using outsourced facility” Mr. Jagdiesh Sawlani, a marketing executive in the same firm add to Kashif saying, “Our main motive while outsourcing is to speed up our order execution as the work gets spread and divided; so it quick things up besides the lower cost of working as Al-Karam being a massive mill also has a high over head cost that make some of our in-house capabilities more expensive than the out source” Some times when the factory often add up to its list; orders that are exceeding their monthly production capacity, that is when Al-Karam primarily thinks of getting things done out sourced. How ever Outsourcing has its disadvantages too for Al-Karam. Being a textile firm catering to huge volumes; the outsourced goods; due to their large number of units are difficult to audit during production and thus maintaining same standard of quality with the goods being produced in house. It also happens that outsourced products are better in quality than the goods produced in-house thus producing a quality gap between the two. It becomes harder to make the outsource company understand the requirement and sometimes whole order gets wrong due to a minute lapse of communication. There are also risks of leakage of end customer information which is considered very secretive in textile sector and no company prefers to disclose customer information and their clientele lists to outsiders. Conclusion With this report it is well clear that vendors do not have facility to cater all requirements of a product and sometimes due to bottlenecks in facilities available in house and increased cost of making a particular product in its own facility; companies look for outsourcing. Companies like Al-Karam in source products that they feel can be handled well by their expertise available with accurate handling of quality standards within acceptable cost of production. References [1] CIO Definition- Outsourcing retrieved on April 24, 2007 from http://searchcio.techtarget.com/sDefinition/0,,sid19_gci212731,00.html [2] Why outsource work? Retrieved on April 24, 2007 from http://www.outsource2india.com/why_outsource/why_outsource.asp [3] The five Ws of outsourcing Retrieved on April 24, 2007 from http://www.outsource2india.com/why_outsource/articles/5_w_of_outsourcing.asp [4] Definition-In-sourcing from whatis.com available online at http://whatis.techtarget.com/definition/0,,sid9_gci1185946,00.html [5] Online Interview conducted by the writer with marketing team of Al-Karam Textile Mills (Pvt) Ltd (website: http://www.alkaram.com) on the issues of Outsourcing and In-Sourcing of their product manufacturing operations. Read More