8 Different Types of Outsourcing: Which one is for you?

Outsourcing — or the business activity of subcontracting certain tasks to third-party providers — comes in different forms. Find out what type of outsourcing best fits your firm through this guide. 

What are the different types of outsourcing? 

Outsourcing has eight (8) main types. This includes professional outsourcing, IT outsourcing, process-specific outsourcing, project outsourcing, operational outsourcing, manufacturing outsourcing, logistics outsourcing, and multi-sourcing. 

The common ground between these outsourcing types lies in their main function — that is, providing extended support to your business to supplement your internal needs. 

The subsequent table gives you a summary of the common types of outsourcing and which entities can benefit from them. 

[Free Guide] Outsourcing: How to Make it Work 

Deciding which type of outsourcing service applies to your firm depends on your internal needs and requirements. Continue reading below to learn more about the different outsourcing types.

1. Professional outsourcing

Best for firms with limited expertise or skills to manage a certain function. 

Professional outsourcing involves delegating specialized tasks to experts or specialists. This works best when you have limited in-house capacity or expertise to handle a specific business function. 

If you’re from the real estate industry, for instance, and your firm does not have a fund accounting team, then you can outsource this function to an outsourcing company with fund accounting or real estate specialization. 

Rather than building an accounting team from the ground up, working with specialized outsourcing providers can streamline your operations — thus, making your firm more agile. 

2. IT outsourcing

Best for companies that need to expand their IT capabilities cost-effectively. 

Information technology (IT) outsourcing is the process of hiring an external provider to handle a portion or the entirety of your firm’s T operations. It includes services like software development, cloud migration, DevOps, software maintenance and support, mobile app development, and software QA testing, among others. 

This type of outsourcing can be beneficial for your firm if: 

• it has a limited capacity to maintain an in-house IT team, 
• it lacks the necessary skills and expertise to handle specific IT functions, 
• your in-house IT team can no longer accommodate new projects, or 
• you're looking for ways to cut operational costs. 

By outsourcing specific IT functions, you can leverage your chosen provider’s expertise and technological capabilities while reducing costs.

3. Process-specific outsourcing

Best when you need assistance with specific tasks. 

Process-specific outsourcing is when you outsource a certain process or internal procedure to ensure the continuity of your business operations. 

This works best when you need to expand the capacity of your in-house operations. Process outsourcing is also ideal when you lack the expertise to handle a specific task or when you’re having a tough time hiring qualified talents. It's also useful when you need to let go of admin-related and non-core duties so you can focus on your core projects.

A good example of this is a company that outsources its bookkeeping and tax reporting functions so its in-house accounting department can focus on more pressing business matters. Other services that fall under this category are recruitment, outbound sales, and customer service to name a few. 

Related: A Comprehensive Guide to Outsourcing CFO Support Services 

4. Project outsourcing

Best for project-based initiatives that don’t require a permanent, full-time position.

As the term implies, project outsourcing involves hiring a service provider to complete certain projects on your behalf. These projects can be either one-time, temporary, or seasonal.

Contracting your projects to third-party professionals comes in handy especially if you don’t need help full-time. Through this option, you can outsource your projects for a certain period rather than hire someone permanently.

Project outsourcing is also a workable solution for meeting your firm’s seasonal demands.

For example, if you run an audit firm, you can tap into the expertise of outsourced auditors during busy seasons. By doing so, you can accommodate more clients, meet deadlines, and maintain high-quality work without overworking your staff. 

5. Operational outsourcing

Best for businesses with limited ability to handle a certain operation or those that plan to expand into new services.

Operational outsourcing occurs when you delegate a certain operation to a third-party provider. This can be your marketing, human resources, payroll management, or product development. 

It can also work when you’re planning to offer a new service, but you don’t have the internal capacity to provide it yourself. For example, if you have an accounting firm and want to offer a service on business analytics, you can delegate this entire operation to an accounting outsourcing company. 

6. Manufacturing outsourcing

Best for product-based businesses.

Manufacturing outsourcing is the process of contracting your production needs. This outsourcing strategy lets you take advantage of economies of scale. In other words, it’s a clever way to ramp up your production and save costs on labor and materials. 

It can work in two ways: 

• Outsourcing the entire production of your product. 
• Outsourcing the production of some product components. 

For better visualization, think of Apple. This multinational technology company designs its products in its California headquarters but outsources the production of its components to about 200 suppliers worldwide. 

7. Logistics outsourcing

Best for businesses that need assistance with their supply chain operations. 

Logistics outsourcing is when you hire an external provider — called third-party logistics or 3PLs for short — to manage your supply chain needs.  

Among their common services are related to fulfillment, warehousing, inventory management, and transportation of goods.

8. Multisourcing

Best for diversification of business and mitigation of risks. 

As the term suggests, a multisourcing strategy is when you outsource to several service providers. It can also be a combination of the different types of outsourcing we discussed above. 

By choosing this outsourcing strategy, you can capitalize on the expertise and resources of multiple experts. However, it also calls for the most complex processes. Since you’ll be working with different suppliers, you need to implement a well-thought-out tactic to make it work in your favor.  

Read Next: Is it Time to Outsource Your Accounting? 

Reminders before you outsource

Regardless of the type of outsourcing you decide to use, you should always do your due diligence before signing any outsourcing contracts. Do your research, dig into the service provider’s history, review all legal agreements, and consult with a legal expert whenever necessary. 

With proper planning, using any of the different types of outsourcing arrangements can help you save costs, expand your firm’s capacity, and bring back your focus on your core projects. It also allows your in-house team to move from basic accounting tasks to more complex yet rewarding duties. 

Give professional accounting outsourcing a try

If you’re looking for an established accounting outsourcing company, look no further than D&V Philippines. We have wide expertise in working with various industries and broad experience in using different accounting technologies.  

Download Finding the Right Talents: D&V Philippines’ Solutions for Modern Accounting Firms whitepaper today and learn how we can be your reliable outsourcing partner.  

And if you’d like to keep things moving, our lines are always open to answer your queries.

This article was first published on 9 October 2020 and was updated on 16 February 2024 for relevancy and comprehensiveness.

Edited by: Mary Milorrie Campos