Question

A company is considering outsourcing the production of a key component of its primary product. An analysis of differential costs indicates that the company could save $1,000,000 per year by outsourcing. Savings of this magnitude are significant to this company. Briefly describe the qualitative aspects of outsourcing that must be considered prior to making the decision of whether or not to outsource the production of this component.

Answer 1

Below are the Qualitative aspects of outsourcing to be considered

• Demand for the product in the Future. Because of its internal production there is always flexibility in the production which from outside doesnt have.
• Quality of the material is very important as it can impact the final product which will affect the sales if the quality is bad.
• Timely supply of the component is also important, because any delay in supply will make us to lose the sale
• Production capacity of the supplier.
• Alternative suppliers availability.