Is "contracting" or "contracting out" just different terminology for "outsourcing"?

2. Is "contracting" or "contracting out" just different terminology for "outsourcing"?

These two terms are often confused, but they are not the same at all. Contracting is when a company (buyer) purchases goods or services from another company (supplier or vendor). In this situation, the buyer "owns" and controls the process. In other words, the buyer tells the supplier exactly what it wants and how it wants the supplier to perform those services. The supplier cannot vary from the buyer's instructions in any way. The buyer can replace the supplier quite easily by breaking the contract.

In outsourcing, the buyer turns over the control ("ownership") of the process to the supplier. The buyer tells the supplier what results it wants the supplier to achieve, but the supplier decides how to accomplish those results. In outsourcing, the supplier has expertise in a certain process (such as desktop, or human resources, or logistics, etc.), and it has economies of scale. If the buyer were to dictate to the supplier how to do the job (as happens in contracting), the buyer would be destroying an important aspect that makes outsourcing work - the value that is created by using the supplier's expertise and economies of scale. Telling the supplier how to do the job also eliminates accountability on the part of the supplier, and this is an important element in successful outsourcing relationships.

Here is an example of printing services that are outsourced and that are contracted.

Contracted: The buyer says it wants 500 copies of the product. The buyer tells the supplier what kind and weight of paper to use, what method to use in binding the product (staple, glue, clips, brads, etc.), how many people should be working on the project, etc..

Outsourced: The buyer says it wants 500 copies of the product and it needs to be first-rate quality, bound, produced at a cost that is lower than what it costs the buyer to do it in-house, and accomplished faster than it could be done by the buyer in-house. Then the supplier decides how to accomplish the quality, lower cost, speed, what type of paper and binder to use, etc.

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Question List Service Oriented Architecture for Offering Outsourcing Solutions BEAT in ITO Managed Services IT: Helping Caldwell Memorial Hospital become the Hospital of the Future The Deal Zone: Getting Real About IT Outsourcing Agreements Addressing the Challenges in Implementing or Consolidating Portals Buyer-Driven Supplier Consolidation Will Change the ADM Industry Vendor-Managed Inventory in IT	2. Is "contracting" or "contracting out" just different terminology for "outsourcing"? These two terms are often confused, but they are not the same at all. Contracting is when a company (buyer) purchases goods or services from another company (supplier or vendor). In this situation, the buyer "owns" and controls the process. In other words, the buyer tells the supplier exactly what it wants and how it wants the supplier to perform those services. The supplier cannot vary from the buyer's instructions in any way. The buyer can replace the supplier quite easily by breaking the contract. In outsourcing, the buyer turns over the control ("ownership") of the process to the supplier. The buyer tells the supplier what results it wants the supplier to achieve, but the supplier decides how to accomplish those results. In outsourcing, the supplier has expertise in a certain process (such as desktop, or human resources, or logistics, etc.), and it has economies of scale. If the buyer were to dictate to the supplier how to do the job (as happens in contracting), the buyer would be destroying an important aspect that makes outsourcing work - the value that is created by using the supplier's expertise and economies of scale. Telling the supplier how to do the job also eliminates accountability on the part of the supplier, and this is an important element in successful outsourcing relationships. Here is an example of printing services that are outsourced and that are contracted. Contracted: The buyer says it wants 500 copies of the product. The buyer tells the supplier what kind and weight of paper to use, what method to use in binding the product (staple, glue, clips, brads, etc.), how many people should be working on the project, etc.. Outsourced: The buyer says it wants 500 copies of the product and it needs to be first-rate quality, bound, produced at a cost that is lower than what it costs the buyer to do it in-house, and accomplished faster than it could be done by the buyer in-house. Then the supplier decides how to accomplish the quality, lower cost, speed, what type of paper and binder to use, etc. [Previous Question] [Next Question]	Enter your email to receive Outsourcing Journal and other Outsourcing Center information. ADS
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