Certified Production & Operations Manager (POM) Practice Exam

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What is the term for the practice of transferring a firm's internal activities to external suppliers?

Outsourcing
Strategic alliances
Vertical integration
Insourcing

The correct answer is: Outsourcing

The term for transferring a firm's internal activities to external suppliers is outsourcing. This practice allows businesses to focus on their core competencies by delegating non-core functions to third-party vendors. Outsourcing can lead to cost savings, increased efficiency, and access to specialized expertise that might not be available in-house. Companies often choose to outsource functions such as customer service, information technology, and manufacturing to streamline operations and improve overall performance. While strategic alliances involve partnerships between businesses to pursue mutual benefits, they do not necessarily entail transferring internal functions to external suppliers. Vertical integration refers to a company's expansion into different stages of production within its own supply chain, which is the opposite of outsourcing. Insourcing, on the other hand, means bringing external processes back in-house instead of delegating them to outside entities, which also contrasts with the concept of outsourcing.