The motivation and risks of BPO

The question of evaluating outsourcing is always a question of efficiency and effectiveness with regard to overall business objectives. These can be fundamentally subdivided into (a) cost reductions, (b) increases in profits and © a reduction in the capital employed.

In the following, the motifs and risks in an outsourcing decision, divided into monetary and non-monetary decision-making criteria, are presented in more detail. Companies should note that it is very difficult to make a general assessment of outsourcing, also in purchasing SMEs. As shown in the previous chapters, the manifestations and forms of BPO Projects are very diverse. In addition, other influencing factors such as sector-specific peculiarities or the planned extent of outsourcing must also be taken into account. The balancing “for” or “against” the individual arguments and the consequences resulting from this must, therefore, is undertaken by every company for itself.

Financial reasons for outsourcing:

Financial decision-making criteria are based on the cost advantage of an outsourcing decision. As I can see in the survey I conducted, the answering options with a monetary background are the most frequently cited reasons for an outsourcing decision. They are therefore an important basis for decision-making for many companies.

Volume effects:

Economies of scale describe the condition that the average cost per output unit decreases with increasing output per unit of time. The outsourcing service providers use the so-called bundling effects. This means that the service provider bundles the purchasing volume of several customers and acts as a customer in the market. As a result, companies use the bundling effects of the joint purchasing power of service providers and companies, thus reducing unit costs per transaction.

Consolidation effects:

Interconnection effects are always present when the extension of the focus, e.g. Through the combined outsourcing of several closely interlinked business processes, can achieve higher cost savings or productivity or quality gains than by outsourcing a single, isolated process. In principle, each company should ask itself: Which processes or sub processes can be outsourced? With regard to the outsourcing of purchasing processes, the question arises whether only operative procurement management, for example, generating purchase requisitions should be outsourced or areas from strategic purchasing management, for example, supplier management. What advantages can a company now derive from these interconnected effects? On the one hand, the outsourcing of tightly connected processes reduces the number of error-prone interfaces. On the other hand, it is possible to significantly reduce throughput times. It can, therefore, be said that the larger the influence of the BPO service provider or the processes it assumes, the greater the positive interconnection effects and the associated cost saving effects.

Efficiency through specialization:

A further motive for the decision on an outsourcing is the use or access to the specialized know-how of the BPO service provider. In this case, the customer can be informed about the availability of industry, process and technology specialists of the BPO service provider benefit. The BPO service provider is specialized in a very specific field of activity, can carry out operational processes such as, for example, Purchasing, into an already existing BPO organization and thus cost-effectively and efficiently.

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Relocation of locations:

Many companies are wondering whether it makes sense to use standardizable non-core processes, such as the purchase of C-parts, highly-qualified employees and high-priced city centers. With the aid of BPO, costs can be reduced both in the personnel area and in the leasing area because often it does not matter where the service is provided. In addition, there are facetted opportunities to carry out standardized processes at a different location. From outsourcing to other regions, outsourcing to distant low-wage countries, offshore outsourcing (e.g., India). Furthermore, as the distance from the new location increases, the risk of implementation and the necessary time-to-market are increasing.

A further consideration is whether the outsourcing company separates low-communication e.g. Database maintenance from communication-intensive processes that require close customer contact.

Conversion from fixed to variable costs:

The conversion of fixed costs into variable costs, and thus of the externally related, consumption-dependent service “such as electricity from the socket”, is another argument for service outsourcing. The ideal model would be the outsourcing of precisely those processes, which are subject to strong seasonal and/or cyclical fluctuations and which lead to high fixed costs for the company in times of weakness. The price model would be purely transaction-based. However, this is more of a wishful thinking and cannot be fully implemented in practice.

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