Contracting Out Versus Contracting In Essay

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What are some reasons for and against contracting out? Additionally, what are reasonable items to contract out?

Contracting out is often justified according to the principle of economic specialization. In other words, it is best if a particular organization focuses on what it does best. An organization should not spread itself thin. It is also more efficient for organizations to operate on economies of scale. For example, a widget factory can make widgets, and then subcontract its customer services offshore, so it does not have to divert needless resources into training and human resource development. Subcontractors can theoretically provide certain products at a lower cost and thus justify outsourcing.

On the other hand, when an organization subcontracts out it cedes a great deal of oversight to the outside organization. Safety of the final product may be in greater doubt because of the lack of direct supervision of its construction. Also, there may be ethical issues regarding the persons who engaged in the contracting work receiving a fair wage, since so much of contract work is used as a cost-cutting measure (Fine, 2012).

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The training of the workers regarding quality and safety standards may likewise be in doubt. Additionally, as is currently being seen in the wake of the coronavirus crisis, when specific areas of the supply chain are impacted by outside events, this can cause unexpected delays, and the organization has no internal resources to rectify them.

Contracting out labor-intensive aspects of a project may be necessary, if it is prohibitively expensive for the organization to perform them internally, or difficult to maintain quality standards and safety internally. But ideally, the aspects of the contract which require the most stringent safety and quality-based controls should be performed in-house, and there must be strictly enforced standards for subcontracted as well as in-house products and projects.
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