The Importance Of Outsourcing

No matter how small or large the business size is, the company needs to purchase from others. In this sense, more and more people have recognized purchasing as a strategic function in business (Paulraj, Chen, & Flynn, 2006). Purchasing plays an important role in terms of the strategic decision-making process and money saving (Cousins, Lamming, Lawson, & Squire, 2008b). In order to gain more profits or reduce cost, outsourcing is now viewed as a crucial mean, where the outsourcing company does not produce the non-core products or activities itself, and contract with outside suppliers. By nature, both buyers and suppliers run their business for profits, and sometimes they have different or contrary objectives to acquire benefits for themselves.

They asked to in which researchers identify vested outsourcing as the best practice in outsourcing. By creating a culture of shared values and goals for both buyer and supplier, the success of the business is based on the win of both parties rather than sacrificing one (Vitasek et al., 2013; Vitasek et al., 2012). This model focuses on outcome, which means that only when the suppliers achieve the requirements of the buyers, the buyers will pay money to suppliers instead of paying for suppliers’ activities, therefore, suppliers have to understand buyers requirements and buyers needs to give suppliers enough space in order to achieve the outcome. In this way, Vested Outsourcing fosters an environment that both parties desire to innovate, to improve and to cooperate with each other. In Vested Outsourcing, there is no strong - weak relationship, both parties are equally invested in one another’s success (Vitasek et al.,

Price and the pricing relationship directly influence the success of a business. This requires that both parties must have a properly structured pricing model through cooperation, flexibility, and innovative thinking that incorporates incentives to drive productivity and transformation efforts (Vitasek & Manrodt, 2012). Using margin matching as an incentive in pricing model is recommended by Vitasek and Manrodt (2012), because it ensures the adjustment of actual prices are paid fairly and transparently.

A governance structure with insight, rather than oversight. It is essential to achieving a successful outsourcing through sound governance. Governance the insight to ensure all the rules works effectively during the agreement life. Vitasek and Manrodt (2012) listed three types of management and one consideration to guide a sound governance structure. First of all, relationship management provides a flexible environment to allow parties to monitor what is happening and communicate with each other. Transformation management is about the management of changes. Both parties should have the awareness of changes, ready for changes and encourage innovation. Last management is exit management, which states that there should have a management plan if both parties are unable to deal with the future unknowns. The concern is that the governance structure needs to follow specific requirement and regulatory