Outsourcing or outsourcing is the practice of providing a product or service from a third party. This report will try to know  what   factors should be taken into account or in what circumstances is it better to buy out to do in-house.

Outsourcing has been successfully generalized to peripheral or secondary activities - cleaning, maintenance, transportation - which do not involve a strategic risk for the company.

However, to outsource activities that may be central or differential  for the company as manufacturing, design, marketing, information systems and distribution   aspects should be analyzed carefully before making a decision.

Define what  activities are key   to the company .

The core activities or key are those that customers perceive as a differential value of the company and therefore are essential to their competitiveness.

Are those aspects, activities or processes that will enable the company to differentiate itself from competitors, for example in the quality of their products or services, its ability to recognize market needs and innovate, or maintain a low cost position.

The skills that are critical to the company must be governed within the company, and are those in which the company should continue investing and building unique capabilities and different.

Assess all relevant activities in the value chain .

Costs must be analyzed for each  activity in order to evaluate and compare the savings that could be generated in case of outsourcing some of them. Accounting   traditional general is not suitable for this type of analysis is necessary to use methods of activity-based costing (ABC costing).

With the results of the analysis and costing of activities is in a position to compare costs between "doing" and "buy ".

Cost comparison between "doing" and "buy."

To determine the cost of "buying" and compare it to "make" should be considered  not only   the price of the product or service offered by the provider but to identify and measure all the activities and internal costs to be generated if the company to outsource.

Attention should be paid all the costs involved in the process of acquiring and managing the relationship with the provider by the company.

Should be considered from the initial search and comparison between suppliers to the daily management of information systems and logistics, such as to control the supplier agreement and warranty costs, costs associated to cooperate with the vendor for product improvement or service.

The cost of outsourcing consists of the price of the product or service plus any transaction costs that are generated before, during and after outsourcing.

Analysis of the relationship with the supplier .

Outsourcing core activities usually requires a close working relationship with the provider based on mutual cooperation and information exchange.

Partnerships and alliances involve risks and should be managed, which means additional costs. That may be more or less expensive depending on the type of industry, the competitive structure of the same, the relative power between supplier and customer, and the risks that the supplier can assume opportunistic behavior in the future.

In circumstances in which outsourcing requires partnerships, you lose some advantages such as flexibility.

The decision to outsource an activity or process critical of the company depend on the possibility to govern the relationship with the provider under any contractual or associative mechanism that is reliable. For it is delegating with a third one aspect that poorly managed, can determine that the company ceases to be competitive.

Across the counter, the companies aim to become preferred suppliers for customers who decide to outsource, as well as offering a product, service and affordable price should show signs of confidence and learn to manage the relationship with the client so that not add unnecessary transaction costs.

In addition to the strategic considerations which process to outsource and to whom, one must analyze the risks and legal costs of outsourcing in response to  the controversial law reform 18,099 and recently passed it emerge as  a series of new duties and responsibilities for the entrepreneur who difficult and expensive the cost of outsourcing.

KEY TO DECIDE

-        Analysis of what are the critical points of the value chain

-        detailed costing of each company's core business.

-        Comparative study of the cost of "doing" and the total cost of "buying"

-        Type of relationship with the supplier and ability to govern

-        Reliability of supplier

 Advantages of Outsource

-        You gain flexibility and rapid adaptation

-        You can improve the competitiveness of the company to outsource processes in which the other is more efficient

-        You can convert some fixed costs into variable costs by lowering the load structure

-        We know exactly the cost of outsourced activities avoiding  "hidden" costs that often affects the profitability of SMEs.

Disadvantages of outsourcing

-        You lose some control of the outsourced process.

-        are exposed to loss of competitiveness if not assessed properly outsourced activity

-        are exposed to risks and liabilities under the new law 18,099

Extracted from a report: Gustavo Rubinsztejn

The full text can be found at:

http://www.endeavor.org.uy/SobreEndeavor_archivos_biblioteca.php

 

 

 

 

Law  18,099 of outsourcing   and its recent reform

 

The controversial Law No. 18,099 also called Law of outsourcing  changed the system of responsibility of the companies that use outsourcing services either through  subcontracting, brokering, or by companies supplying temporary workers, for workers in these.

Under the previous regime to the present law  the employer maker outsourced services should respond to any claim of an employee if the employer did not direct, and only for minimum wages paid.

With enactment of the new law was changed 18,099 corporate responsibility taker outsourced labor, aggravated risks and jointly liable for ALL ANY DEBTS on the worker.

Implications of the new law

·       The worker now has two managers who claim: his real employer and the company they are paying, or paid-effective service.

·       The employer must be responsible for all obligations, Both wage and indemnity, as well as social security contributions, a cousin of accidents and occupational diseases and recoveries and penalties owed ​​to the State Insurance Bank in relation to those workers .

·       Companies that use outsourced services must now monitor the effective implementation of work-related and social security charges or intermediadotas subcontractors for labor.

Reform of  the new law

At the request of the criticisms of the corporate sector reform adopted a   more flexible corporate responsibility labor takers incorporating these aspects:

* It implements a controller system based on compliance with labor and social security obligations which holds the company acquiring such labor for the company employing the worker.

* If the company receiving the workforce becomes effective the right to be informed about compliance with labor and social obligations by the intermediary company, subsidiary will respond.

* If the sub-contractor, agent or supplier of labor does not establish the obligations of labor and social security, the holder of the workforce may withhold payments to the supplier, paid directly to workers and agencies social security.

* On the other hand, if the policyholder service company does not exercise its right to be informed and monitor the effective implementation of obligations by the intermediary or supplier shall be liable in solidarity, which as I explain above, implies  greater responsibility.

 

RICARDO: SET COLOR

 

SUMMARY:

- The recent amendment to the law of outsourcing implies a significant flexibility in the scheme introduced by Law 18,099.

- Open the door to a vicarious liability regime, breaking the rigidity of the 18,099 law solidarity.

- Joint and several liability means that the company will respond to the same worker's employer, the latter may sue on an equal basis to both the employer and policyholder company outsourced labor.

- The subsidiary liability implies, for its part the company workforce taker will respond if the worker's employer does not.

- The application of each type of responsibility is directly linked to the effective management of the company comptroller to make with regard to payments and contributions made by the company that provides workers.

- It is vital for the company that takes cash departments to the comptroller, obtaining the records that demonstrate compliance with labor obligations and social security by the company providing the service.

- The documents required are: a) statement of nominated work history and proof of payment of contributions to the interim body, b) a certificate attesting to the. Payment of social security contributions, c) evidence of payment of compensation insurance work, d) form of job control, paystubs pay and if appropriate, the collective agreement.

 

 

Extracted from a report by Lamas Dr.Diego Source: U. News

http://uruguayescribe.com/2008/01/11/la-ley-de-tercerizaciones/

 by Silvina Panizza. (*) The correct costing of products and / or services is a pending issue for most SME entrepreneurs who are just starting your business.  Perhaps most consuming resources is not obvious (large purchases or lconsumos)   but those who are called  "hidden costs" that the inexperienced entrepreneur often ignored because it is more difficult to identify but cumulatively significant influence on the box.

Processes have continuously updated costing not only makes financial health but also provides essential information to develop plans and make the right decisions. Cost management is important to businesses of any size and any activity, whether industrial, commercial, agricultural or service.

 

Some common questions that may clarify cost study

·        What are my products   more profitable?

·        Should I   stop producing a product to benefit the most profitable?

·        How much did it really?

·        Should I increase the sales price?

·        Are all my costs included in the prices?

·        What are the   costs that affect most? ¿I can download them?

·        I can do more profitable a product?

 What benefits does   a study cost?

 ·        First, the cost study enables information used to evaluate the management of the company. This information is useful both for the company itself (internally) and for third parties (eg. Banking institutions to whom the company applies for funding). SMEs often face difficulties in access to credit for not having the information required by those awarding credits.

 

·        A proper allocation of costs is also useful to develop  the action plan . One of the characteristics of SMEs, is the low level of planning. It is very common to find companies that do not have an outline of the major objectives in the medium term. Problem solving on day to day,  takes on a significance that precludes excessive setting goals and longer-term strategies.

 

·        Third, the comparison of planning   with real information , to control, analyze deviations, significant changes and therefore , make better decisions .

Some basic concepts of cost

Within the traditional approach there are a number of concepts that must be taken into account:

 

·         Costs can be classified in various ways, one of them is about their function: production (or services), marketing, administrative and financial.

·         Another way of classification, which we understand very useful for management and decision-making, is according to their behavior: fixed or variable costs

 

1.       variable costs (VC) is the change in direct relation to the level of activity: produce more consumption and less power if I produce less.

Examples of variable costs: raw materials, packaging, etc..

2.       Fixed costs (FC) are not changed by varying the level of activity, regardless of how much selling or I have to pay the same.

        Examples of fixed expenses: rent, management fees

3.       Contribution margin (mc) is the difference between the selling price (p) and variable cost    -cv mc = p

§         Contribution margin = selling price - variable cost

4.       's sales (INCOME)   are given by the number of units sold (Q) for the price (P) of sale.

§         X REVENUE = Amount sold Price

5.        The total costs are the sum of fixed   and variable.

§         = FIXED COSTS TOTAL COSTS + VARIABLE COSTS

 

6.       Breakeven ( Qe) is that level of activity in which the result is zero. That is, total sales are  equal to total costs.

§         Point of balance: INCOME - TOTAL COSTS = 0

An alternative to the traditional

An alternative analysis of costs and more modern approach is called "ABC"  means activity-based costing . This is based on the fact that an undertaking to produce, market or provide a service, you must perform different activities consuming different resources. The idea then is to determine the cost of each of these activities, then assign it to different products, goods,  services or different clients, according to the portion of each of these activities that each requires.

 

Examples of activities in an industrial company to be relieved for the administration and allocation of costs ABC .

 

·        Receipt of applications

·        Send quote

·        Negotiating prices

·        Order of purchasing raw materials

·        Receipt and control of raw material

·        Payments to suppliers

·        Order to the manufacturing plant

·        Preparation

·        Fractionation

·        Quality Control

·        Packaging

·        Expedition

·        Distribution

·        Billing

·        Collection

·        Administration and Finance

BASIC VALUE CHAIN ​​INDUSTRIAL COMPANY 

 

REVENUE                                   PROCESSING                           PRODUCT         DISTRIBUTION SERVICE        

RAW MATERIAL                                                                                  OVER POST-SALE                                           

  

The cost allocation approach based on activities enables the company to eliminate those tasks and reduce non value or involve barriers to effective performance of the enterprise as a whole. By identifying the critical points in the value chain, we may focus toward improving efficiency by applying corrective measures. For example, it may be that a particular activity is best performed by outsourcing it to the company. It may also be an activity to be eliminated either because they are duplicated in another part of the process or because it directly is unnecessary from the point of view of adding value.

 

The cost system is particularly useful when you sell the same product to different customers . Using ABC, we can conclude that there are no profitable customers should be abolished. For example, the same product or service provided to customers AA and BB, which has costs may be different, because the sale to the latter consuming more resources for billing, collection management, etc..

(*) Economist, Member of Consulting Department CARLE & ANDRIOLI - Certified Public Accountants