State of the art on outsourcing / insourcing process and total cost of ownership

Shorter product development cycles, greater variation diversity, cost pressure and higher complexity of products – today’s enterprises have to deal with enormous demands in order to be successful in the market. Conclusively, it is important to introduce products or services, which do not only inspire customers, but can also be produced at a reasonable price. While present theories mostly look at a single or few steps in the product development process– catchwords like “open innovation”, “quality management” and “supply chain management” verify this – there are still insufficient theories in the sector of procurement. Today’s savings in production or in service are usually achieved by cost-effective personnel recruitment, product parts as well as product components. Subsequently, the portion of the procurement costs of the total expenses of an enterprise exceeds 60 percent, in some cases even 80 percent. Nevertheless, the procurement of additional purchase parts or services is related to high risks (e.g. on the basis of delivery delays, production failure or communication problems). Numerous organizations cannot estimate the costs that can originate from such risks. Therefore concepts and methods are needed to support small and middle-size enterprise (KMU) within the scope of out- and insourcing decisions. Only with this scope the potential costs of procurement risks can be identified and combatted with suitable strategies. This paper will clarify the main points of the topics outsourcing / insourcing, total cost of ownership and the relation between the two topics.