Top risks of supply chain outsourcing
I came across the 40 risks and mistakes of supply chain outsourcing in Supply Chain Digest and thought I would share with you some for my favourites:
- Inadequate business case development for the outsourcing decision – Often decisions are made on perceived cost alone, however hidden costs are not built into the business case, for example freight impacts, Tax implications, the impact of flexibility.
- Outsourcing undesirable functions versus the ones that provide greatest competitive advantage - In many cases the difficult or hard to manage functions are outsourced, however they may be core competences that should be insourced. It must be clear the value outsourcing a function will bring.
- Not casting one’s net widely enough for potential providers of the service, and thus missing good candidates - Many companies you have an outsourcing relationship with will tell you they have a specific set of skills but often on further examination capabilities are limited if not non-existent.
- Insufficient knowledge of service provider capacity limitations - Understand space availability and manpower requirements, get detailed information on how the supplier flexes during peaks and what you get for your money.
- Having an unrealistic timeline for any of the steps of the outsource process including start-up - Often outsourcing is complex and it must be implemented in a way that limits risks especially if the process relates to revenue generation. A pilot program usually limits risk and allows for a timely smooth start up.
- Inadequate planning concerning information systems and interfacing with the service provider - Systems integration is costly and needs collaboration from both sides, often resources need to be booked well in advance of the implementation date.
- Lack of incentives for provider continuous improvement - Aligning incentives is key to creating a long term collaborative relationship. The business should make both parties be profitable to achieve long term objectives.
- Lack of a formal “lessons learned” roundtable on outsourcing in general and, specifically, established outsourcing relationship - An open collaborative approach is required to build a long term relationship. A formal review process such as QBR’s will help in this process.
Do you have any favourite mistakes you would like to add?