Every business has to determine whether they should perform a service themselves in-house or outsource that particular service to an outside vendor. Facility services and managements are just two of the services that can be performed either in-house or outsourced to a vendor.
The following graph shows the relationship between company size and potential need for outsourcing. As a company reaches 1,000-10,000 employees, the potential need for outsourcing drops dramatically. In organizations of this size, sufficient resources can usually be found in-house to perform a function, as well as having resources to handle backup coverage. [pic]
At first glance, it seems counterintuitive for a company to outsource highly-visible or important services. Once you look at all the things a company must do to handle a service in-house (and keep it running continuously), it becomes more evident why many companies choose outsourcing versus operating a service in-house. If a service is provided in-house, a company must: • Locate a qualified employee
• Train the employee
• Pay employee wages and benefits
• Provide the employee a physical workspace
• Provide the required equipment and technology
With outsourcing, the company must only:
• Locate a reliable and high-quality vendor
• Pay the vendor for the services provided
Trying to structure your business today can be a difficult task. With each decision that is made, there are many questions that should be asked first; What and how can we increase profits the most, What and how can we cut cost? How can I increase efficiency? How can I control capital cost? To answer that question, some businesses choose to outsource parts of it business structure. With one definition of outsourcing being the process of contracting a third party, you then have to ask yourself how or where the work will be performed. Let’s suppose that one organization,
such as a hospital wanted to outsource its food service, but has decided to have the food prepared in house. The reason/advantages behind that would probably be the questions most people would ask. Some advantages are the company employees may have a better understanding of the industry, and their vested interests may mean they are more likely to make decisions in accordance with the company’s goals. Also, the hospital could have the same staff but saving on health insurance, vacation pay and salaries. Having this food prepared in house, the company could be paying rent to rent the space in house, which is bringing in more revenue each month. With a hospital, you want to have food available and different times and made to order. The flexibility of time is important. If the food is made off site, it will probably be canteen food or refrigerated food instead of a hot meal. When a person is not connected to something it does not create loyalty. Something’s, need to be kept in house to reduce the possibility of law suits, etc. Also if a patients diet changes, and everything is performed within the hospital, this helps reduce errors being made. Even though most businesses/organizations try to be structured the same way similar companies do, that isn’t always the case. Now that we have seen why this hospital could have decided to outsource their food service but still have the food prepared in house, let see why another company could decide to outsource and have the food prepared outside as well.
As we have studied, some companies choose this method because of their realization of cost savings or better cost control over outsourcing its food and service. Companies usually outsource to a vendor that specializes in a given function and performs that function more efficiently than the company could, simply by virtue of transaction volume. Its rationale would be cost savings but there are also risks. “An liability can be a tremendous risk if the products or services of other companies cause harm to customers or the environment, as well as damage to an organization’s reputation.”(Operations Management, tenth edition,)”Reputation can also be damaged if the public discovers that a supplier operates with substandard working conditions.” (Operations Management, tenth edition) There could be many more reasons here, such as: o The Company functions on a continuous or ongoing basis rather than on any specific single project. o It enables companies to focus
on their core business function. Outsourcing takes care of ancillary functions in part or in totality. This optimizes the company’s growth based on its core or specific business. o Reduces operating costs by focusing on major business area. This way, the capital funds always remain available for the core business instead of being diverted to other supporting portions of the business. o Outsourcing when taken off shore gives you access to world-class capabilities. You can leverage global resource networks to support your business. It gives you another perspective or dimension to the existing business for more efficiency. o It fosters and sustains an exceptional safety culture, emphasizing training and employee morale o Creates flexibility with the facilities to even provide support in times of industry uncertainty. o Speeds up work, shares innovations for best practices. You can maintain competitive edge with new ideas. o Reduces risk and increases productivity.
o Frees many resources for other purposes for enhancing or expanding your business in other directions. o Companies can save 10-20% cost on an average with outsourcing.
Some hospitals do not want to deal with “Safety and Sanitation” issues on a daily basis. With outsourcing this could reduce the cost of keeping equipment in properly order and also reduce cost in training staff on a regular basis and also eliminate training new staff. Outsourcing could cause the hospital, to only work with a smaller scale, thereby reducing cost and increase savings through hiring less employees, benefits, etc.
Now that we understand why organizations outsource, why some can keep the outsourced work performed with in and others do not, let’s get a better understand of why some organizations bring back the same workers to do these jobs and use the outsourced company to provide the management? Even though they hired back the employees, I assume the purpose of continuing the outsourcing with management only was because of their cost saving strategy. The management would probably be handled more efficiently by an outside specialist. Also outsourcing management could bring in new information of expertise that is beneficial to the overall core competence of the hospital. We could see the company bringing back the old employees because of the
turnover rate. This was probably causing unexpected costs, maybe the work wasn’t been performed correctly, etc…Outsourcing the management was probably due to the fact that they didn’t have the manpower, or time to manage this staff. Sometimes it is better to have an outside source that can bring in fresh ideas and recommend changes. Outsourcing the manager position would probably make the employees feel detach because the manager is not employed by the hospital. There is no connection there. Even though it could be saving the hospital some money, look at what they have to pay to the employees. Outsourcing the manager even though they do make more money would not save them as much if they were to outsource the entire department.
As we have all learned, outsourcing can be beneficial to most organizations and can be more beneficial when you have another organization joining you. Some companies today such as hospitals will ask another hospital to join them in outsourcing. I believe the rationale for asking another hospital to join it was to eliminate distractions and force themselves to concentrate on their core competencies. This can free the hospital from tedious and time-consuming tasks of the laundry service so they can concentrate on the marketing and sales activities that are most essential to the firm’s long-term growth and prosperity. Obtaining an outsourcing partner really sells focus. So, if the hospital brings in an outsourcing partner they can focus their energies on sales, marketing, and all the other things that matter more. Asking another hospital to join in could save both hospitals a lot of money that could be used in updating their medical equipment, hiring more medical staff, etc. With this, only one hospital would have to deal with the laundry, thereby sharing equal expenses it could save both hospitals money in the long run through one hospital paying the other hospital for doing their laundry and the other hospital could dissolve their laundry department all together. Where I work at, all contaminated laundry are placed in special containers and sent to one State facility to handle it. Towels, sheets, etc. that are used campus wide are sent also to one central location. This helps reduce contamination and also help this particular facility to focus on reducing the risk of contamination. Patient’s clothing are done within the home unless it is contaminated, then it is placed in a contaminated container that has been specified for these
items and sent to the facility that is designed for this. This helps reduce cost for the facility and also reduce widespread contamination.
Therefore in conclusion, it is needless to say, the decision to outsource any major function is not one that should be taken lightly, and careful consideration of all major issues is vital, if the transition is to be smooth and satisfactory to both parties.