Identifying and Mitigating Outsourcing and Offshoring Risks: TON Program 17 March 2016

March 18, 2016

We had a great TON program on outsourcing and offshoring risks at CBS yesterday.

 

Ronan McIvor, Professor, Ulster University, kicked off the day’s program  with a workshop on identifying categories and drivers of outsourcing and offshoring risks as well as Identifying strategies for mitigation. Ronan brought our focus to several common risks, e.g. loss of internal capabilities, higher than anticipated transition costs, and challenges with managing remote teams while also emphasising that many risks are stage-dependent, e.g. the high costs of vendor search and selection prior to contracting. Ronan also noted that general business and operational risks are typically magnified when outsourcing and/or offshoring is involved. Discussion about mitigating risks raised the interesting point that often, mitigating actions can themselves introduce risk, e.g. the move to multi-sourcing to reduce the lock-in risk, raises risks in governance involving multiple vendors.

 

After setting the stage, Ronan guided our group discussions to talk about specific risks, drivers and mitigations. While having our group discussions, it was vital to discuss whether the particular risk was driven by a client, vendor, process or relationship driver, in order to best be able to understand and mitigate the risk itself.

 

Katrine Milman from Bestseller joined us to talk about CSR and how outsourcing can impact the brand. Bestseller’s labels are producing apparel in countries including Bangladesh, China, Turkey, India, Italy, Pakistan and across Eastern Europe. The number of suppliers is growing annually and now includes over 800 factories and over 350 suppliers. Audit programs to assess and monitor these suppliers and their factories require a substantial investment yet are critical to ensuring adherence to Bestseller’s code of conduct and to protect their brand(s). In addition, corporate guidelines such as neither working in multi-factory buildings nor buying through agents, help to ensure that risks are properly minimized.

 

Michael Mol, Professor, CBS, then briefly described Apple’s challenging offshored outsourcing situation which has been covered in the international press. This gave our network a chance to discuss the major issues: Does Apple bear the responsibility for the actions of its supplier towards the supplier’s employees? What good is a code of conduct if Apple can’t/won’t enforce it? and; What is the role of governments at outsourcing destinations?

 

In our next session, we got a chance to look at risk from another perspective, that of organizations establishing offshored/outsourced set-ups. Jens Brinksten, CEO, KMD Poland. Formerly with Simcorp (Ukraine), Cikclum (Ukraine), KPMG (Uzbekistan), E&Y (Uzbekistan), and Egmont (Eastern Europe), contributed with insights from his many efforts establishing offshored centers. Primary to Jens’ message was that client organizations are typically not doing the necessary preparatory work to really understand the issues and that once started, it’s really hard for management to take corrective action or stop an offshored initiative. The key to really making this work is to have the unequivocal backing of the management committee and to communicate, communicate, communicate.

 

Our program ended with a panel discussion moderated by Katie Gove, including some of our members: Fredrik Cedmert, Director, Commodity Management, Global Procurement & Supply Chain, GN; William Menzel, Senior Vendor Manager, Strategic Partnerships, KMD; Laith Said, Strategic Partnership Manager, Grundfos, and Lars Nordestgaard Nielsen, Nordic BPO Director, ISS. A central question was whether companies are truly able to establish comprehensive risk “pictures.” Several panelists pointed out that the “picture” depends on who drives risk assessments and supplier audits. One thing is clear and that is that increased C-level interest on risks in outsourcing has been driven by a better understanding of financial liabilities. Our discussion covered a lot of ground but came back to a critical point that companies must really good as general risk assessments and really good at responding appropriately in critical situations.

 

Ronan wrapped up the day by observing noting the need to include the vendor perspective on risks and that often, the flip side to risk is value.

 

Our next program is on May 26 at DTU’s Executive School of Business. Our theme is innovation and outsourcing/offshoring. Already on the program are Björn Rudberg of Ericsson who will come to talk about co-development with vendors and Peter Skyttegaard of Mærsk Line who will take a look at innovations in outsourcing business models. DTU will develop a workshop on outsourcing of/in the future. If you wish to join us or to find out more, contact Katie Gove at kg@trellis.dk


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