Question

Describe any FOUR (4) problems associated with outsourcing in the context of procurement with relevant explanations and examples.

Answer 1

Problems with outsourcing can be listed as follows:

1. Loss of control- The items procured are not controlled by organization and is dependent on the supplier. This may lead to problems like shortage of items. This accounts for hidden loss.

2. Risk of hidden costs- There are some hidden costs associated with outsourcing. It may be hidden in contracts signed by the companies or in manpower agreements. Contract may include rework costs.

3. Risk of financial burden- Items are generally outsourced to small businesses. It is risky to associate the financial condition of own organization with small businesses keeping in mind they fail to deliver their commitments. Delay or failure of commitments may lead to rise of hidden costs.

4. Risk of fame/Name- When outsourcing, the organization's quality depends upon the quality of items received through outsourcing. procuring low quality can lead to deterioration of organization name and fame.

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