Definition: The Outsourcing Inventory System is adopted by the firms to reduce the burden of manufacturing the components of the finished goods in-house i.e. within the organization. Thus, a system of buying the products or components from outside vendors rather than manufacturing internally is called as Outsourcing Inventory system.
Many companies develop a single source of supply from where the needs of the material can be fulfilled. While many others help in developing the small and medium sized ancillary units to supply the adequate quality components, as required for the manufacturing of the finished goods.
Tata Motors is the prominent example that uses the outsourcing inventory system. It has developed several ancillary units around its manufacturing plants to get the parts and components in time. This has benefited the ancillary units as well, with the help of Tata Motors they are able to manufacture the best quality components.
Likewise, Tata Motors, Maruti, an automobile company, uses this inventory system to fulfil its need for the components.
Thus, with the help of an outsourcing inventory system, a manufacturing firm can reduce both the time and money involved in manufacturing the components in-house. Also, it enables an organization to capitalize the manufacturing efficiency of others, which could not have been possible, if manufactured internally.