Business process outsourcing (BPO) is a practice where one company contracts with another for certain activities. For example, an Internet retailer contracts with a fulfillment company for picking and shipping customer orders. This BPO service allows the retailer to focus on selling goods without warehousing goods and processing orders. The purpose of a BPO service is to achieve lower operating costs by allowing another business to do a particular service. Outsourcing is fairly common, having both advantages and disadvantages in the business environment.
A common desire for a BPO service is to achieve an economy of scale. This means the outsource company is able to offer low costs to their clients because they have the ability to complete a particular service cheaper. For example, an outsourcing company can create a call center. By taking the necessary steps to invest capital into this business operation, the outsource company can save other businesses the capital investments for this process. Hiring and training phone workers also lowers investment costs for a company that chooses to use the outsource company.
Many different business activities can fall under the BPO service activities. The most common activities may be call centers, accounting services, retail fulfillment, or sales services, among others. Companies may be able to use an international BPO service in lieu of a local service if necessary. These services often make heavy use of technology to complete the service. In most cases, an international outsource business can offer lower costs due to cheaper labor and fewer business regulations.
Fees and charges often vary for a BPO service. Depending on the service requested by a client, outsource companies may charge flat or variable fees for certain activities. A call center, for example, may charge a monthly fee for clients using the service. Rates may also include a variable portion for the number of minutes the BPO service workers handle phone calls for the client. This structure needs review by clients to ensure they have ample resources to pay for the service’s fluctuating fees.
For all the benefits a BPO service may offer, there are drawbacks to this business relationship. Among the primary drawbacks is the outsource company completing tasks in their own manner. The service typically uses the client’s name when handling customer orders or phone calls. Rude, unprofessional, or poor service will often reflect on the client, not the BPO service, as customers do not distinguish between the two companies. Fee changes, changes to services, and other problems may also exist in this relationship.