Attain the nirvana of low fixed overheads through outsourcing

The way forward for most organisations is not only to be lean and mean, but to be flexible. Dell Computers and Nike have demonstrated the power of flexibility and speed through outsourcing. It is not just the fast that will eat the slow, but the flexible ones will be able to beat the inflexible. One of the most effective ways to stay flexible is to outsource most of the functions. For instance, Dell Computer and Nike no longer manufacture most of the parts or components they need. Rather, these are outsourced.

These companies do away with the traditional supply chain network and can be very nimble to change parts and components in order to meet customers specifications without ending up with huge stocks and factory overheads. However, these companies do not outsource everything. For those parts and knowledge that are critical to the companies, they are kept in-house. For example for Nike, the sole of the shoes is still designed in the United States.

Organisations are moving towards the virtual organisation concept, using networks linking people, assets and ideas to create and distribute products and services without being limited by ownership of fixed assets and incurring fixed overheads. A virtual organisation is virtually unbeatable and is the nirvana of every accountant for it carries little fixed overheads. This is why outsourcing is becoming very popular, although it may not necessarily translate into lower overall costs but it certainly lowers the fixed overheads and gives the company more flexibility to change with the market dynamics.

A final word is that outsourcing is not a cure-all. It has to be managed properly to ensure that there are no costs over-run. However, if properly managed, outsourcing is indeed a nirvana to reduce fixed overheads.