Why can’t we do it better? Why can another firm carry out a task more cost-effectively than yours? Presuming the task doesn’t involve some arcane technology, you must be doing something wrong. If you fix it, you can compete favorably with the supplier candidate. The solution is not outsourcing; it is making your shop more efficient and cost-competitive.
Will outsourcing really reduce costs? The most significant benefit cited for outsourcing is usually reduced labor cost. Unfortunately, payroll is often unchanged after outsourcing, because incumbents are assigned to other jobs. So operating costs are increased by the purchase order value, not reduced by the proposed labor savings! Overhead costs are often a significant part of the anticipated cost reduction. Equally often, the overhead line item on the income statement doesn’t change because the costs are allocated elsewhere!