Strategic Outsourcing calls for Better Vendor Management
Outsourcing provides a variety of benefits, but with rewards come risks. Strategic outsourcing, one where risk and rewards are carefully analyzed before acting, is not possible without discussing the importance of efficient vendor management.
In the marketing campaigns by most of these outsourcing service providers, you will find one of two common phrases – “cost-effective” or “cost-efficient.” Marketers make sure that the term “cost” keeps ringing in your ears for long periods.
Don’t worry; they are not lying. It is a plain fact that outsourcing reduces cost; however, strategic outsourcing reduces cost is the more appropriate view.
One of the key components of strategic outsourcing is improved vendor management. According to Gary S. Venner, Senior Vice President and Director of Outsourcing, TBI, and Marianne Bays, Ph.D., Vice President and Measurement Services Director, TBI, “The simple truth is that outsourcing deals don’t run themselves.”
In their fourth article in the Vendor Management Series, they have addressed the need for regular improvement in the vendor service agreement based on the changing scenarios. Other highlights of the article are open and regular communication between the service provider and businesses, and less response time to service delivery issues.
But before we move ahead with the rewards, let’s do the balancing act and analyze the risk. What are the risks of inefficient vendor management in outsourcing? As a customer, if you do not practice a productive, well-constructed vendor management deal, you may face the following risks:
1. Strategic Risk: Outsourcing will not do miracles to save costs. This only happens through acute planning and oversight at each step. Many vendors will promise you low cost, but as discussed, with rewards come risks; there will always be chances of compromised quality. A good outsourcing service agreement deal should have the oversight to consider the challenges and consequences of inadequate expertise, delay, and change.
2. Reputation Risk: Poor vendor management can directly affect the quality of the work, and can also risk your reputation. If not governed well, the loss of quality of service may impact your business and management, which ultimately can damage the image of your company.
3. Compliance Risk: Local regulatory rules and compliance should be checked and followed to avoid getting into legal tangles. Once trapped in an agreement, costs could be much higher than the benefits.
4. Operational Risk: Lack of communication, technology failure, power failure in some countries, or frequent labor strikes in the region could lead to operational risk.
With the help of improved vendor management techniques, these risks could be easily avoided. So, before creating a vendor management agreement, it is essential to carefully conduct an overview of the risks and implement solutions that could curb those risks.
Some of the best vendor management practices followed by companies and considered by outsourcing service providers are:
1. Allocate Dedicate Resources: You need to allocate dedicated resources to manage the day-to-day activities on a regular basis. These resources should act as the primary medium of communication between the onshore and offshore teams, so as to quickly resolve any working or delivery issues.
2. Consider the size and structure: Every outsourcing provider will express confidence about carrying out large projects. But it should be your responsibility to maintain the balance between confidence and capability, and accordingly, allocate the responsibility. Never believe the bogus, “yes, we can.” To do that, you need to check the current financial status, employees, and structure of the outsourcing vendor.
3. Regulations: You should follow the legal regulations involved with the association with the vendors. Every country or even state has different regulations and compliance requirements. You must follow them to avoid getting into litigation.
Communication and cooperation can help you easily overcome the risk and see the benefits of outsourcing. It is important to establish a sound communication medium and provide solid working cooperation with each other.
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