THE

OUTSOURCING
DECISION

IN N EY S ILD A L ATIFAH
H E STR IYAN A P U TR I
DEFINITION
Outsourcing is subcontracting a process, to
a third-party company.

outsourcing is the contracting out of a

business process(e.g. payroll processing,
claims processing) and operational, and/or
non-core functions to another party such as
a vendor, cooperatives or other institutions
that are regulated in a specific agreement.

The decision to outsource is often made in

the interest of lowering firm costs, redirecting
or conserving energy directed at the
competencies of a particular business, or to
make more efficient use of land, labor, capital,
(information) technology and resources
.
ACTIVITIES TO OUTSOURCE

The first step in preparing an outsourcing study

is understanding your firm's value chain and the
relationships among its service activities
Each stage activities can be broken down further
into its requisite subcomponent activities.For
example is Distribution activities as being a
candidate for external outsourcing.
Some activities are eliminated immediately as
candidates for outsourcing, either because the
service cannot be contracted outside or because
the firm must control the activity to maintain its
competitive position.
 For those activities eligible for
outsourcing, the key strategic
question to ask is whether the firm
can perform a service activity on a
level comparable with the best
organizations in the world.
Productivity measurements should be
compiled to capture these critical
success factors for the activity:
availability, timeliness, flexibility,
quality, and cost reduction. Measures
are then benchmarked against the
results of firms that offer these same
services in the marketplace.
OUTSOURCING FLEET MAINTANANCE

The service activity in question must

pass several hurdles:
1. Is it possible to purchase the service
externally?
2. Does the firm need to control the
service activity as would be the case
with secret documents or a critical
technology?
3. Most important, is the firm capable of
delivering the service at a world class
standard of performance?
Two implicit assumptions seem to
explain the short-term emphasis in the
accountant's conventional approach to
make-buy analysis. First, the underlying
decision objective is focused on
maximizing the use of available capacity
Second, discussions on make-buy are
concerned almost exclusively with
purchasing parts or subassemblies, with
infrequent attention given to decisions
on buying services
CREATING SHAREHOLDER WEALTH

As with any long-term investment

decision, the criterion for acceptance
shifts from an income perspective to
one that seeks to optimize
shareholder wealth. Thus, the
foundation for strategic outsourcing
analysis is the use of discounted cash
flow to measure changes to a firm's
value.
DISCOUNTED CASH FLOW(UNIFLATED,TAX COST OF CAPITAL
16%)
STRATEGIC CONCERN
STRATEGIC CONCERNS
Before making a final decision, however, management
must consider the less tangible, more uncertain benefits
and costs that can accrue from global outsourcing
. The following are among the most important strategic
considerations.
(1)Technical supremacy. By outsourcing noncritical
activities, a firm can gain by sharing in the vendor's expertise
and economies of scale.
(2)Flexibility. Firms that outsource services have the
advantage of not being tied to past investments
(3) Opportunities to coproduce innovation. One of the
benefits of developing coalitions with external partners is the
potential for the emergence of innovative opportunities.

Additional intangible costs also might be introduced by

outsourcing. One of the greatest potential costs is the
damage incurred by a firm that becomes overly dependent on
its outsourcing partner
FORMING ALLIANCES

Having completed the computational

analysis and considered the
qualitative factors, the analyst has laid
the foundation for deciding whether to
outsource. One critical determination
remains: Is this service activity part of
the firm's core strategy?
Managers embracing a core
competency philosophy look to the
firm's value chain to discover where
outsourcing coalitions will offer
greatest benefit
Advantages and Disadvantages
Advantages
There are several advantages of outsourcing,
namely:
1. Focus on key competencies
2. Saving and Control operating costs
3. Utilizing the vendor competence
outsourcing
4. The Company can respond to market
quickly
5. Reducing the Risk
6. Improve efficiency and improvement in the
jobs that are non-core
 Disadvantages
1. Loss of managerial control
2. The existence of hidden costs
3. The threat of security and secrecy
4. Quality
5. In regard to the financial wellbeing
of other enterprises
6. Bad publicity and Ill-Will
Cons of Outsourcing System
The existence of outsourcing agencies in Indonesia
still raises the pros and cons in the community.
But if the terms of the workers, a system of
outsourcing in a company gives some adverse
aspects of the outsourced workers. Being labor
outsourcing agencies means being home-based
workers are not as a permanent employee
In the Labor Law has set the protection of the
rights of workers, among others:
1. Protection of layoffs
2. Social Security
3. decent wages and retirement savings.

In practice, these rights are something that is very

difficult to be obtained by the outsourced workers.
Some of the problems complained of by the
outsourced workers, namely:

1. Cutting Wages
2. Ensuring Job Security
3. Less Protected Rights
4. Absence of Collateral and Other Benefits

With the complaints were so many parties

demanded that the government revoke the
enforceability of clauses in the Labor Law
concerning about outsourcing