Assessing Risks of Outsourcing in the Supply Chain

Abstract

Supply chain field has been facing major changes in the recent years with Covid-19 pandemic and Ukraine war. These changes have led to new risk factors effecting business and situations which were not able to forecast before. At the latest now the companies should pay attention on the risk management at their operation and try to minimize risk factors and the effect for their business. When adding outsourcing dimension to the equation the complexity of the processes, amount of stakeholders involved and lack of control have to transform companies to more organized risk management. From risk mitigation perspective the outsourcing partner pre-evaluation and continuous monitoring through KPI’s are necessary processes in the outsourcing process. The risk management starting point as well as many other aspects of business starts with the self-reflection of current state and capability for the change. Risk management is not something companies can afford to ignore and there have to be active strategy to mitigate and control risks. The aim of the research was to find out 1) how to manage outsourcing risk factors, 2) how to evaluate outsourcing partner as well as 3) how to remain control and independency. The first question on how to manage outsourcing risk factors starting point is to identify risk factors and combine these for manageable groups. Usually, the resources are limited, and it is crucial to focus on materials which are responsible of high amount of profit margin. Evaluating of outsourcing partner starts from understanding of the objectives for outsourcing decision, pre-evaluation of the outsourcing partner based on the requirements, continuous monitoring through KPI metrics during the process and future plan for continuous process and improvement. From control and independency perspective the change management process is the enabler towards successful and controlled collaboration. The nature of outsourcing defines the significance of control needed and the more the outsourced function is connected to the core business the more there should be control and traceability to the processes. Understanding what and why is outsourced is the foundation of controlling the outsourced function with constant communication and monitoring.