Domberger, S., Jensen, P.H. and Stonecash, R.E. (2002). “Examining the magnitude and sources of cost savings associated with outsourcing”, Public Performance and Management Review 26(2), 148-68.
This article analyzes the impact of outsourcing on the cost of maintenance and warehousing services in the New Zealand Army. Using a present-value framework, a costing methodology is developed that accounts for production costs, one-off costs (such as redundancy payments), and ongoing transaction costs associated with the outsourcing exercise. The authors find that expenditure levels have been reduced by between 24% and 37%. They also examine the sources of the observed savings and find that the majority of the savings have come from labor-saving technical change (23%) and labor shedding and reductions in inefficiency (58%), rather than cuts in the terms and conditions of employment (19%).