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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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?



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