Strategic not avoidance outsourcing

Outsourcing is, of course, quite a common practice these days. How many companies have not jumped into outsourcing? I was reading the classic list published by Supply Chain Digest: 40 Risks and Mistakes of Supply Chain Outsourcing and stopped at the first mistake:  Outsourcing undesirable functions versus the ones that provide greatest competitive advantage. This first mistake reminded me of a difficult outsourcing situation that I came across recently. The organization had a problem supplier. This supplier manufactured a key item for this company. However, the supplier constantly delivered late, and and their quality was abysmal. I asked this firm why they were putting up with such poor performance. Had they not asked the supplier to improve? Or tried to help the supplier improve? Why didn’t they find another source? The answer: it’s complicated.

In further questioning, it seemed that the supplier’s management and command and control culture were problemmatic. Associates had no power to change things and no training even to know what to do to improve the quality and delivery. No one really understood concretely and specifically what needed to be done to improve the situation. And with an indifferent management that thought they were managing the bottom line and inadvertently starving manufacturing into anorexia, the situation was bleak. The problem seemed intractable.

My take: start the process of finding a new supplier ASAP. Problem: the supplier is effectively sole source. While technically the supplier is single source and that other suppliers can be found, switching to another source would be a long and costly process.

Now it’s easy, but too late, to opine about how this customer should never have gotten itself into this bind in the first place. Companies need to outsource for the right reasons. Any product or component that is strategic to an organization’s survival, no matter how badly the company does not want to make that product, should not be outsourced unless there are strategic reasons for outsourcing it and there are viable alternative sources. Avoidance instead of strategic outsourcing can lead to unpleasant and unintended consequences. Viable alternatives mean that the switching time and costs are not prohibitive.  However diligent you are, your supplier can start out great and then fall on bad times through mismanagement, a buyout, market conditions or a supply risk black swan event. But it behooves the customer to monitor the supplier closely and not get to the point where supplier poor performance creates a disaster for the customer due to unintended dependence.


Sherry R. Gordon

Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management


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