What are the key issues faced while outsourcing labour?

To cut costs, many companies have “outsourced” their labour to contractors. This may reduce costs in the short term, but create many issues in the long term. I have consolidated 5 Major Issues with Outsourced Labour (Context: Indian Manufacturing Sector)

1. Attrition: A lot of attrition in the labor in your shop floor, as it depends on the contractor. People come & People go. There will be a lot of shuffling of people across various companies to manage absenteeism / attrition from the contractor’s end. A person working in your unit today may be asked to go to another company tomorrow by the contractor. 

2. Lack of Training: Since there is a huge labour turnover, you will face difficulties in training the people on even some of the basic tasks. You’ll start training the person, but someone else turns up for the job on the next day. So a lot of human errors start to happen. In many companies they go for ‘outsourcing’ to manage simple / unskilled jobs, but things start to go downhill even in those activities. Standardisation of the tasks become very difficult.

3. Poor Quality: Quality Suffers as there is a lack of training, this adds to a lot of reworks and rejections. In many cases the outsourced labour focuses only on Production volume and not on the Quality (as their salaries depend on the production). So you’ll try to train them, but constant attrition means you’ll not be able to train, leading to poor quality – it becomes a vicious cycle

4. Lack of focus on Improvement Activities: The Outsourced labour do not have any incentive to participate in continuous improvement projects as their salaries are not dependent on improvement projects. Even if the company staff is involved in the improvement projects, the participation of the contract labour will be less. So there will not be a big impact in the improvement projects.

5. Culture / belongingness: All the above points leads to a culture degradation in the company and a sense of belongingness. Everyone in the company would become frustrated and demotivated. People would hesitate to take up improvement activities.

So, while Contract labour looks like cost reduction activities, in reality it has huge impact on your organisation. 

Am I against Outsourcing labor? No, I am just highlighting some points which helps in decision making.

Have you observed these points in your organisation? Did I miss out any points? What are your thoughts? Share in the comments.

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Cheers,


Ananth