What is the difference between outsourcing, & subcontracting?
Any help with example is appriciated.
The dictionary meaning of OUTSOURCING is, procuring services or products from an outside supplier or manufacturer.
SUBCONTRACT: A contract that assigns 'part' of the obligations of an existing/prior contract, to a sub contractor.
Broadly speaking, you obtain a contract on the basis of your facilities to execute the same on your own, but decide to 'subcontract' a part of it to another contractor for one or multiple reasons, then it is a 'subcontract'.
Let us have an example: Automobile manufacturers do not manufacture all the components in their facility. They
out source a number of components from other manufactures. Therefore
outsourcing is a term applied to whatever you are not doing on your own turf.
Now, 'Y' receives a contract for one of the automobile component- say filter from 'X'. 'Y' does have the facility to fulfill the contract, but he feels that, if he utilises his machines for more profitable items like cans & cover plates (high profit components) and give end caps (low profit components) to a sub-contractor 'Z', he can increase his profitability. Now this is
sub contracting. Again 'Y' has to get springs, pleated paper and rubber components for the finished product, so the contractor 'Y' has to
out source the same from other manufacturers.
So in the nutshell 'X' has outsourced components from 'Y', and 'Y' in turn has
outsourced some and
sub contracted some, as per his convenience.
Hope this provides more clarity on the differentiation.
Umang
Nota bene : This is a practical example from my factory.