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Outsourcing - Outsourcing Examples

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While it's possible for a company to outsource virtually any kind of service, in the early 2000s several were especially common in the e-commerce arena. Among them were IT management; logistics and order fulfillment; Internet video production, management, and distribution; customer relationship management; and Web site development and hosting. The ease and cost efficiency of handling different aspects of e-commerce in-house was easier and more cost-effective for some companies than it was for others, so companies outsourced services differently.

Many companies looked to outside parties to handle online order fulfillment (filling and shipping orders they received via the Internet) instead of building or renting their own warehouse operations, which required special expertise for e-commerce. This freed them to focus on core competencies like creating new products and services, and marketing. Logistics & Distribution Report indicated that many Fortune 500 companies were outsourcing transportation, warehouse management, and inventory management by the late 1990s. In 1999, third-party logistics contracts grew by 16.5 percent, and revenues totaled $46 billion. According to the publication, growth rates were expected to reach 15 to 20 percent by 2003.

When companies rely on third-party fulfillment providers, they normally manage the front end of e-commerce (the content and appearance of their Web site) and leave the rest to the third party. In other words, the third party receives orders from customers, manages the inventory of available products in its warehouse, and coordinates shipping. Some also provide value-added extras like customer service.

Another example of outsourcing involves application service providers (APSs), third parties who manage business applications for companies so they can focus more on their core business. These applications often involve things like payroll, billing, and customer service. The software systems offered by the ASP are sometimes Web-based, so that client companies do not have to host the software and devote resources to maintaining and updating them. Although ASPs held the potential to simplify things for client companies, they also moved long-held control over internal systems and data to outside parties, which made some organizations uncomfortable.

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