Business Process Outsourcing is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business function, process, or service to a third party service provider. Business Process Outsourcing may be characterized as back-office or front-office. Back-office outsourcing usually refers to the outsourcing of internal business functions such as human resources or finance while front office outsourcing usually refers to external business functions such as customer service.
In a supply chain context, Business Process Outsourcing can take a number of forms. It can involve the back-office outsourcing of invoice processing and payables in Procurement, the outsourcing of inventory management to the vendor (known as Vendor Managed Inventory) or a third party, and the outsourcing of service agreements (and their management).
Business Process Outsourcing has its advantages and disadvantages. On the up side, it can allow you to leverage:
But on the down side, it can lead to:
- economies of scale
- process expertise
- administrative efficiencies
- new technology
- a loss of local knowledge
- a loss of control over performance
- a loss of visibility into day-to-day activity
Whether or not you should engage in business process outsourcing boils down to whether or not the third party BPO firm can do the functions more effectively and more economically than you can do them in house, whether or not you can effectively manage an outsourced relationship, and whether or not you can insure that key knowledge stays in house should you ever have to insource part or all of the operation again in the future.
For more on business process outsourcing, please refer to the following posts: