Certified Production & Operations Manager (POM) Practice Exam

Which of the following is NOT an advantage of outsourcing?

1. Cost savings

2. Increased efficiency

3. Potential creation of future competition

4. Focus on core business activities

The correct answer is: Potential creation of future competition

Outsourcing is often adopted by businesses to capitalize on various advantages that enhance operational efficiency and cost management. Among these benefits, cost savings is a primary driver, allowing companies to reduce expenses associated with hiring, training, and maintaining staff. Increased efficiency often follows, as outsourcing firms typically specialize in their services, leading to improved output and quality. Additionally, by outsourcing non-core activities, companies can maintain a sharper focus on their primary business functions, which can lead to greater strategic development and market competitiveness. However, a potential creation of future competition is a significant concern that may arise from outsourcing, but it is not regarded as an advantage. When businesses outsource, particularly to firms that may be in the same industry or market segment, there is a possibility that these external partners could evolve into competitors. Therefore, while outsourcing offers many operational benefits, creating future competitors is more of a risk than an advantage. This involvement with other businesses can eventually lead to them becoming significant players in the industry, undermining the original company's market position.