Businesses and companies outsource their manufacturing works in order to gain a cost-competitive edge in the market. Today, we’ll discuss what is business process outsourcing; its types, uses, benefits, challenges, and decision-making process.
What is Business Process Outsourcing? BPO
BPO (business process outsourcing) is the process of hiring and subcontracting third-party manufacturers in order to carry out the company’s operational tasks. Only the manufacturing companies utilize the concept of BPO. For instance, a soft drink/shoe manufacturing company outsources different supply chain operations. Nowadays, service companies are also using BPO.
- BPO uses subcontractors and 3rd party vendors to perform various operations of the company
- Initially, big companies use BPO vendors to support their supply chain management. Nowadays, BPO vendors have entered into various fields, and service companies
- Usually, BPO means hiring and subcontracting offshore vendors
Explanation & Uses of BPO
Many outsourcing firms offer creative services in today’s competitive business market. That’s why companies and startups (big and small both) are choosing to outsource their works.
Businesses follow BPO techniques in two main areas of their operations; front office and back office. The back office is when a company outsources its core business operations like regulatory compliance, human resources, IT services, payment processes, and accounting to the outside firms for the smooth running of various business functions.
Some of the main works of the front office are marketing, sales, tech-support, selling products, delivering, advertising, and customer service.
Types of Business Process Outsourcing
Some of the main types of BPO are as follows;
As the name implies, it’s when a company hires a 3rd party company and contracts its work from the neighboring country. For instance, a Canadian company hires a BPO vendor from the USA.
Onshore outsourcing also goes by the name of domestic sourcing; it’s when a company hires a BPO vendor from its own country. It could be different cities and states, but the country remains the same.
Offshore outsourcing is when a company hires a 3rd party BPO vendor from a completely different country.
Decision Making of Business Process Outsourcing
When you’re going to convert from in-house production work to a BPO firm, then it demands a huge change in management style. It’s because it impacts various business operations, workflow practices, and employees.
Business operation means various activities that a company performs routinely in order to amplify the company’s profitability and value of the enterprise. When it comes to making an outsourcing decision, then it comprises of following elements;
- The top management of the company decides to hire a BPO vendor and outsources its production works
- Checking the pros and cons of the BPO decision and analyze whether it is making any strategic sense or not
- After selecting the best BPO vendor and then transforming the in-house production work to the external 3rd party service provider
Benefits of BPO
Some of the main benefits of business process outsourcing are as follows;
When a company enters into a foreign market, then it needs the knowledge and insight of the local market. The BPO vendor company has fluency in the local language and familiarity and expertise with the local country’s law.
Core Business Functions
Usually, new startups and young manufacturing companies don’t have experience with manufacturing operations. When they hire a BPO to perform their operational works, then they get time to focus on other necessary business activities.
BPO vendor companies have the expertise and experience in the operational field, and they’re delivering high-quality work. It’s because they’re using the latest technology and best operational practices. Resultantly, you’ll get higher productivity and great efficiency.
Low cost is one of the main reasons that companies go for outsourcing. If the company hires employees, buys costly tech equipment, and performs all the operational works internally. It would add up a lot of costs like overhead costs. The overhead costs are the daily costs of running the business.
Challenges of BPO
Some of the main challenges that a company could face for using the BPO are as follows;
Outsourcing doesn’t happen overnight, and it takes a lot of time by going through various operations and functions. Sometimes, it increases the overall cost rather than reducing it like legal dispute and disagreement with the BPO firm. If the vendor doesn’t deliver the work on time, then it would increase many additional costs.
Language and communication barrier is a common issue rise up while working with the offshore BPO Company, and it impacts the efficiency of the work. If you’re outsourcing IT services and developmental works, and such tasks involve a lot of people. It could cause miscommunication issues and be very costly for the company.
Reliance on BPO Company
When you work with the BPO vendor overtime because you like and are satisfied with its works and your business becomes overreliance on it. The BPO service provider is aware of the fact, and it could exploit its importance by increasing the cost. You would have no other choice but to increase the price because you have to meet the demands of customers.
While working with the BPO Company and sharing data with it back and forth requires you to make an exception for the vendor company. It could jeopardize the company’s data security.
Conclusion: What is Business Process Outsourcing? Types/Benefits/Uses
After an in-depth study of what is business process outsourcing (BPO); its types, benefits, uses, and decision-making process, we’ve realized that BPO could offer a lot of benefits to the company. If you want to apply BPO to your business, then you should study its various types, uses, and decision-making process, and implement them accordingly.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.