What is insourcing and what are the advantages?

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What is insourcing?

Insourcing is the activity of bringing activities that have previously been done via third-party firms back in-house. Rather than rely on external suppliers, a firm decided it is going to undertake such activities themselves.

How does insourcing related to outsourcing?

Insourcing is the opposite of outsourcing. While outsourcing involves moving activities previously done in-house to external firms, insourcing is returning them to being done by the company itself.

Reasons for insourcing

Reason 1: Greater control

The first reason why insourcing may make sense for firms is that it allows greater control over the production process. Rather than being dependent on other firms, you can quickly make changes to the production activities. If a firm is facing quality issues or delays associated with working without outside firms, insourcing may be a way of avoiding such issues, or at least your dependence on others. As a firm, you may be able to make the changes needed to resolve the quality or other issues associated with outsourced production.

Reason 2: Allows greater integration with other areas

Insourcing also allows greater integration between the activity and other areas of the business. For example, you may be able to integrate two stages in the production process together; rather than having a large amount of work-in-progress buffer between your supplier and your firm, you may be able to move components directly from one stage in the production process to the next.

Reason 3: Allows you to build up your own capabilities

The final benefit of insourcing is that it can help you build your own capabilities that may set you apart from other firms. Developing the activity to such a point that you can do things that other firms relying on external suppliers are not able to do may provide the basis of competitive advantage.

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