All business processes have multiple components. These components involve products and services which can either be produced by the business itself (i.e. in-house production), sourced from a few specialized entities (i.e. outsourcing) or can be sourced from a large number of outsiders (i.e. crowd-sourcing). The advantages and disadvantages of each are given below:
- It generally tends to be cheaper as the margin on those products/services are kept inhouse. Also the business has better control over the process and quality and hence is less dependent on outside entities.
- The downside is that this option has higher fixed costs and the required skills may be missing in the production. Also this option is operationally challenging.
- The biggest advantage of this option is lower fixed costs. This ensures that the business is in a better position to handle business cycles. Also outsourcing to specialized entities tends to ensures better quality of products and services.
- The downside is that the business becomes dependent on outsiders. As a result, gaps in information flow and communication can emerge.
- This option is highly scalable and provides the business with large and cheap operational capacity.
- The biggest drawback in this option is that quality control is a big challenge.
All 3 options can be used by any business. The business must assess its priorities and make a decision accordingly.