Definition Outsourcing vs. Subcontracting - The Differences

A

amanbhai

What is the difference between outsourcing & subcontracting?
Since we do a lot of inspections, for some inspections others services are hired & in some cases some labs are hired to do the job.
What do the gurus says: " is it the subcontracting or outsourcing?"
:thanks:
 
C

chergh - 2008

Re: Outsourcing or subcontracting?

I would consider these terms to be synonymous.
 

harry

Trusted Information Resource
Re: Outsourcing or subcontracting?

I would consider these terms to be synonymous.

Agreed. Although I would add that outsourcing was generally meant for non core activities or operations when the concept started in the 80's. The dividing line seems to have faded since.
 
W

wmarhel

Re: The Difference between Outsourcing and Subcontracting?

These definitions are from the APICS (Association for Operations Management) dictionary:

Outsourcing : The process of having suppliers provide goods and services that were previously provided internally. Outsourcing involves substitution—the replacement of internal capacity and production by that of the supplier. See: subcontracting.

Subcontracting: Sending production work outside to another manufacturer. See: outsourcing.

Wayne
 

Wes Bucey

Prophet of Profit
Re: The Difference between Outsourcing and Subcontracting?

These definitions are from the APICS (Association for Operations Management) dictionary:

Outsourcing : The process of having suppliers provide goods and services that were previously provided internally. Outsourcing involves substitution—the replacement of internal capacity and production by that of the supplier. See: subcontracting.

Subcontracting: Sending production work outside to another manufacturer. See: outsourcing.

Wayne
Without ever having noted the above definition before, I have no quibble with the "subcontracting" definition. Essentially, outsourcing is the same in my mind as straight purchasing.

"Subcontracting" in my mind entails oversight and responsibility for the work of the subcontractor an organization hires to do work. The simplest analogy is a general contractor building a single family house who takes responsibility for monitoring and approving the work of subcontractors doing carpentry, plumbing, electrical, etc. and who directs how and when the work shall be done.

Outsourcing seems more to me like only approving a finished product or service and its delivery date.

In my machining business, I outsourced plating services instead of ever setting up a plating capacity, but I subcontracted some machine shops to do work our shop would normally do instead of increasing my own capacity for a one-time special order. As part of that, I or my senior leads would supply the raw stock, oversee the machine setup/tooling and first article inspection and assure in-process inspection followed our procedures and work instructions as if the subcontractor's shop were an extension of our own.

Added in edit:
In effect, my subcontracting
was akin to RENTING machines, operators, and space to run them.
 
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V

vanputten

Re: The Difference between Outsourcing and Subcontracting?

I think the difference is the time sequence of how things happened. I agree with the AIPICS defintions. Outsourcing implies that the activity was once done internally. If the organization never performed the activity internally, then they cannot outsource it. An actiivty never done internally and has always been done externally to the system scope is Subcontracting. If the activinty was done internal to the system scope but then is moved externally is Outsourcing.

Also, oursourcing can be done without any purchasing acitivity. My organization ourtsources many activies to other facilities in our company. Each facility has their own quality system. We moved the activity externally to our local system scope but within the world wide company. The activity is now done by another facility that has their own QMS. We outsourced the activity and none of the negotiations or T&C's went through purchasing.

Regards,

Dirk
 
A

amanbhai

Re: The Difference between Outsourcing and Subcontracting?

Why does ISO series of standard does not recognize outsourcing, though it talks about subcontracting?
:thanks:
 
D

Denis9001 - 2007

Re: The Difference between Outsourcing and Subcontracting?

Maybe another difference can be seen from the inclusion of the word contract in subcontracting. Subcontracting is where you have a specific customer contract and then give part of the work to an external party. You would need to match the subcontractor to the nature of the work/contract. This is covered in 9001 by purchasing because there is a need to match subcontractor to customer/order requirements.

Outsourcing is where you give general work to external parties irrespective of the customer order. In most cases this would be covered by Human Resources but maybe in other clauses eg Production.
 

Brizilla

Quite Involved in Discussions
Re: The Difference between Outsourcing and Subcontracting?

I also believe outsourcing must have started internally, hence the name outsourcing as opposed to selfsourcing. An example is Dell's "outsourcing" their customer service to India. It was originally an in-house function.

Subcontracting can be either. We subcontract our plating out to a house that specializes in plating. We don't plate. We will also subcontract out jobs if our orders exceed our capacity. We could do them, but it would involve late orders and negative customer satisfaction.

Big housing contractors can build with their own specialists (painters, drywallers, plumbers, electricians etc.) or can and will subcontract certain jobs out to outsiders depending on the circumstance. (Like they need all their crews for a housing development.)
 
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