Outsourcing is the practice of paying another business to carry out an activity previously done in house. Manufacturing, customer service and computing support are commonly outsourced.

How does outsourcing turn fixed costs into variable costs?

A business that outsources no longer owns factories or employs permanent production staff. Payment is made per unit ordered, so costs rise and fall with output.

How does outsourcing help a business cope with fluctuating demand?

Extra capacity can be bought from a contractor at a seasonal peak. Idle machinery does not have to be paid for when demand falls back.

State two further advantages of outsourcing production.

Outsourcing gives access to specialist equipment and expertise the business does not own. Capital is also released for investment in the core activity.

Eduqas A-Level Business A510QS

Enterprise, Business Plans and Location

Topic overview Enterprise, entrepreneurs and SMEs Needs, wants and spotting a business opportunity The role of the entrepreneur in setting up and running a business Financial and non-financial motives of entrepreneurs Characteristics and skills of entrepreneurs Entrepreneurs, SMEs and the sectors of the UK economy Stakeholders and their interests Business plans and sources of advice Choosing a business location

Markets, Demand and Market Research

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Business Structure and Sources of Finance

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Topic overview Revenue, costs and profit Fixed, variable and semi-variable costs Direct costs, indirect costs and overheads Calculating revenue, costs and profit Contribution and its uses Calculating the break-even point Break-even charts and the margin of safety What-if analysis of changes in costs and revenue The usefulness and limits of break-even

Marketing and the Marketing Mix

Topic overview The purpose of marketing and market orientation The marketing mix and the four Ps Product, brand, USP and differentiation The product life cycle Extension strategies The product life cycle and cash flow The Boston matrix Pricing strategies Choosing the right pricing strategy Promotion above the line and below the line Place and distribution channels The marketing mix in different contexts New technology in marketing

Financial Planning and Accounts

Topic overview The role of the finance department Budgets and the purpose of budgeting The benefits and drawbacks of budgets Internal sources of finance External sources of finance Choosing the right source of finance Cash flow and cash flow forecasts Constructing and interpreting a cash flow forecast Cash flow problems and how to improve cash flow The income statement, gross profit and net profit Gross and net profit margins

People in Organisations

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Motivation, Management and Employee Relations

Topic overview Motivation and the benefits of a motivated workforce Taylor and scientific management Mayo and the Hawthorne studies Maslow's hierarchy of needs Herzberg's two factor theory Expectancy theories of Vroom, Porter and Lawler Financial methods of motivation Non-financial methods of motivation Management, management by objectives and Theory X and Y Leadership and leadership styles Leadership theories and choosing a style Employment rights, contracts and equal opportunities Trade unions, industrial conflict and dispute resolution

Operations Management

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Data and Market Analysis

Topic overview Presenting and interpreting business data Index numbers and comparing figures over time Calculating price elasticity of demand Interpreting price elasticity and its effect on revenue Income elasticity of demand Sales forecasting and the reliability of a forecast Moving averages and time-series analysis Correlation, scatter graphs and extrapolation Qualitative forecasting techniques

Analysing Business Performance

Topic overview Budget variances and how to calculate them Analysing and evaluating budget variances The balance sheet and how it is constructed Working capital, capital employed and depreciation Liquidity ratios: the current ratio and the acid test Return on capital employed and gearing Comparing accounts over time and between businesses Evaluating the financial position of a business Non-financial measures of performance and vision statements

Aims, Objectives and Strategy

Topic overview Aims, objectives and SMART targets Mission and vision statements Strategy, tactics and corporate plans SWOT analysis Porter's Five Forces The Ansoff matrix Organic growth External growth: mergers and takeovers Horizontal and vertical integration Franchising as a method of growth Rationalisation and relocation Outsourcing production

Decision-Making and Investment Appraisal

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Change and Risk Management

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PEST Factors and the External Environment

Topic overview Political factors and the role of government Taxation and subsidies Fiscal and monetary policy Economic growth, GDP and the business cycle Inflation and how it is measured Interest rates and exchange rates Unemployment Demographic change Social and cultural change Technological factors and automation

Ethical, Legal and Environmental Factors

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International Trade, Globalisation and the European Union

Topic overview International trade and why it happens Free trade and protectionism Trading blocs and the single market Entering new international markets Globalisation and its causes The effects of globalisation on business Strategies for global growth Glocalisation and adapting to local markets Multinational companies The European Union and the single European market The euro, the Eurozone and membership

Aims, Objectives and Strategy

Outsourcing production

3 things to know
Component 2

Overview

Two further advantages of outsourcing production and two risks to quality when production is outsourced.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What is outsourcing?

Key term

Why is outsourcing not the same as moving production abroad?

Key term

Why do businesses outsource production?

Questions from this subtopic

Each one with the model answer underneath.

1
What is outsourcing?
Model answer
Outsourcing is the practice of paying another business to carry out an activity previously done in house. Manufacturing, customer service and computing support are commonly outsourced.
2
Why is outsourcing not the same as moving production abroad?
Model answer
Outsourcing passes an activity to a different business, which may sit in the same town. A move abroad is offshoring, and the activity can stay inside the same company.
3
Why do businesses outsource production?
Model answer
A specialist contractor often produces at a lower unit cost than the business itself. Managers can then concentrate on the activities that create most value.
4
How does outsourcing turn fixed costs into variable costs?
Model answer
A business that outsources no longer owns factories or employs permanent production staff. Payment is made per unit ordered, so costs rise and fall with output.
5
How does outsourcing help a business cope with fluctuating demand?
Model answer
Extra capacity can be bought from a contractor at a seasonal peak. Idle machinery does not have to be paid for when demand falls back.
6
State two further advantages of outsourcing production.
Model answer
Outsourcing gives access to specialist equipment and expertise the business does not own. Capital is also released for investment in the core activity.

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