Outsourcing and Offshoring as Factors Increasing Risk in Supply Chains

Abstract

Outsourcing involves the sourcing of goods and services, previously produced by the sourcing organisation, from external suppliers (Mclvor 2006, p. 7). The term outsourcing is an abbreviation of ‘outside-resource- using’, which means the use of external resources to perform tasks that were traditionally performed in-house. Outsourcing is a concept of organisation management consisting in entrusting tasks to outside companies, which take on the obligation to perform them. The execution of this concept leads to resignation from the independent performance of selected tasks and the entrusting of this to specialised third parties. The theoretical boundaries of outsourcing range from 0% to 100% and the upper limit (100%) means the company outsources all operational activities to third parties and is itself a virtual entity (Rymarczyk 2008, p. 70). If a company does not outsource anything at all (the lower limit of 0%), then its operation is fully based on in-house resources (insourcing). A good example of insourcing is provided by the Ford Motor Company. When Henry Ford realised how much glass was needed to build his automobiles, he decided to acquire a glass factory (Tompkins et al. 2005, p. 4). The traditional business based on own resources allows full control over processes. Generally, insourcing is perceived as an approach that gives higher security.