Certified Supply Chain Professional (CSCP) Practice Exam

What can result from a decision to outsource a core competency?

1. Immediate cost savings

2. Widespread market acclaim

3. Potential loss of internal expertise

4. Strengthened supplier partnerships

The correct answer is: Potential loss of internal expertise

Outsourcing a core competency can lead to a potential loss of internal expertise, which is a significant risk for organizations. Core competencies generally refer to the unique strengths or capabilities that give a company a competitive advantage in the marketplace. When these competencies are outsourced, the organization relies on external entities to perform functions that were traditionally handled in-house. This shift can diminish the organization's ability to develop and maintain the knowledge and skills that contribute to its competitive edge. As the company becomes less involved in these core activities, there is a risk that critical institutional knowledge and expertise may erode over time. Employees may leave the organization, and new hires may not have the same level of expertise, leading to a long-term dependency on external suppliers. This can hinder innovation and adaptability, impacting the organization’s overall performance and strategic positioning. While immediate cost savings and strengthened supplier partnerships may occur as a result of outsourcing, these benefits do not outweigh the strategic risks associated with losing internal capabilities. Widespread market acclaim is also unlikely to be a direct consequence of outsourcing core competencies. Consequently, organizations must carefully weigh the advantages and disadvantages of outsourcing such key functions to avoid significant operational and strategic setbacks.