In any organization, irrespective of the size or activity business management is the most essential activity. It enhances the control of costs, mitigation of risks and business continuity. Seeing that this is not an easy task, various techniques may be employed based on individual firm preferences and the magnitude of operations involved, such as outsourcing and vendor management.
What is Outsourcing?
Recognized as an integral business strategy in 1989, this a business practice that involves hiring outside parties to perform services previously performed in house by the company team. Although this method has brought controversy in many countries due to loss of employment, it is commonly adopted as a cost-cutting measure. It’s also adopted as a means of focusing on more critical business issues and outsourcing the less critical ones.
Examples of business operations commonly outsourced include; IT solutions, accounting operations, manufacturing, and Human resource operations, just to name a few.
Advantages of outsourcing include;
- It saves on time
- It saves on costs
- May increase profitability in a scenario where companies move operations to cheaper countries
- Easier access to resources and skills
- Increased focus on core competencies and strategies
- Increase in efficiency in terms of business operations
Disadvantages of outsourcing include;
- Breach of company confidential information may occur in case of access by other parties
- Signing contracts between two parties require legal procedures, which may be time-consuming
- Quality control may be interfered with in cases of production
What is Vendor Management?
This is an approach that enables a firm research, vet, enlists, and get services from various vendors hence ensuring service deliverability. Among other activities vendor management covers include job assignments, contract negotiations, payment dissemination, performance evaluation, and relationship management. Many vendor management systems have been developed.
This technique has some advantages including;
- A larger pool of vendors enhances better selection
- Vendor contracts are well managed
- It is easier to generate a report for the vendors based on performance
- Guaranteed value for money spent
Similarities between outsourcing and vendor management
- Both aim at ensuring business continuity through control of costs and mitigation of costs.
Differences between outsourcing and vendor management
Definition
Outsourcing is a business practice that involves hiring outside parties to perform services previously performed in house by the company team. On the other hand, vendor management is an approach that enables a firm research, vet, enlist, and get services from various vendors hence ensuring service deliverability.
Operations
While outsourcing entails entirely handing over certain aspects of business operations, vendor management entails enlisting and vetting different vendors for different business activities.
Outsourcing vs. Vendor management: Comparison Table
Summary of Outsourcing vs. Vendor management
While both outsourcing and vendor management aims at ensuring business continuity through control of costs and mitigation of costs, outsourcing is a business practice that involves hiring outside parties to perform services previously performed in house by the company team while vendor management is an approach that enables a firm research, vet, enlist, and get services from various vendors hence ensuring service deliverability.