What is meant by 'outsourcing' in an industrial context?

Outsourcing, in an industrial context, refers to the practice of hiring external organizations to provide services or perform tasks that could be done internally within a business. This approach allows companies to focus on their core competencies while leveraging the expertise and capabilities of specialized third-party providers. By outsourcing, businesses can often achieve cost savings, increase flexibility, and enhance efficiency, as external vendors may be able to offer services at a lower rate or with higher quality due to their specialization.

While some may think of outsourcing as simply moving production overseas, that is a subset of the broader concept. The primary definition emphasizes the hiring of outside firms for specific functions rather than carrying them out within the organization's own workforce. This distinguishes outsourcing from expanding the internal workforce, shifting production facilities, or collaborating with other companies, which involve different strategic approaches to management and operations.