The Benefits and Risks of Outsourcing Supplier Management [Blog]

August 4, 2016 Chris Doxey

 

 

The global economy has disrupted businesses. It’s forced them to evolve; it’s forced them to become highly specialized. Businesses have adapted to this by outsourcing more and more of their operational functions. This is especially true in the back office.

Outsourcing has its inherent risks—what business solution doesn’t! Conversely, it has its benefits, too. This article outlines the pros and cons to consider when outsourcing supplier management.

Benefits

  1. Focus on core business functions—adjust and redistribute budgets

    This is the single-greatest benefit of outsourcing supplier management. Consider reinvesting the savings gained from back into the organization. Perhaps those newfound savings could be diverted to marketing.

  2. Lower costs, gain compliance

    You specialize in whatever goods or services you sell; your outsourced supplier management firm does too. And since they specialize in supplier management, their expertise excels in the peculiarities of compliance. From W9s to 1099s, the outsourced supplier manager handles it all.

  3. Meet demand

    Maybe business is good—too good, in fact. Accounts payable is struggling to keep up with the influx of new suppliers needed to meet demand. Outsourced supplier management firms can handle the influx in demand and scale without adding headcount.

Risks

  1. Unanticipated costs

    No businesses can prepare for the unexpected. Mitigating unanticipated costs, then, comes down to setting proper safeguards. Fluctuating costs happen; unintended costs originating from the supplier management firm, however, should not. Negotiations in the early stages will help manage these unanticipated costs and create procedures for mediation.

  2. Transition woes

    In the case of outsourced supplier onboarding, an ounce of prevention is worth a pound of cure. Having a transition process in place—a meticulous documentation of the day-to-day of the supplier management process—will alleviate these woes. However, no amount of preparation can plan for the one-offs that’ll inevitably arise. The key, then, is to facilitate open communication. Next, document and create unique workflows for each of these on-the-fly processes. Doing so will also help if the vendor fails to meet quality expectations (see below).

  3. Reduced quality

    This is the greatest risk in outsourcing supplier management: reduced quality of work. Hopefully, you’ve done your due diligence and vetted the best company to handle supplier management.

    Consider keeping an up-to-date list of alternative vendors who could step in if the current vendor fails to deliver quality. And by creating those one-off contingencies that arose with the last vendor (see above), your transition to a replacement vendor will be much smoother.

 

About the Author

Chris Doxey

Chris Doxey, CAPP, CCSA, CICA is an independent management consultant providing Internal Controls and Business Process Best Practice Solutions. She has extensive experience in accounts payable, procurement, internal auditing, internal controls, Sarbanes-Oxley compliance, payroll, logistics, financial systems strategy, and financial integration at Digital, Compaq, Hewlett Packard, MCI, APEX Analytix, and Business Strategy, Inc. She was recruited to assist MCI (formally WorldCom) recover from their internal control challenges. She has a bachelor's degree in English, a bachelor's in accounting, a master's in business administration, and a graduate certificate in project management. Chris has written numerous articles and published two handbooks: AP Leadership Skills and Implementing a Controls Self Assessment Program for Your Accounts Payable Department.

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