Top 3 Risks of Outsourcing to Third Party Suppliers

Buyers' Training
July 19, 2013 — 5,262 views  
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In order to save cash, workforce, and time for important processes in a company, companies choose to outsource processes such as accounting and marketing. The company can then focus on major aspects of their business. Getting certain processes of the business done by a third party is referred to as outsourcing or contracting out.

Types of Outsourcing

Budget flexibility is one of the major reasons for outsourcing processes. However, a business should consider this option only after careful examination of the outsourcing risks. Outsourcing definitely has a number of advantages. One of them is that the business only has to pay for the services they require and need not use capital to hire and train their staff.

Outsourcing can be done in a number of ways and the contract can be domestic or foreign. There are different ways that a business can be outsourced to suppliers.

  • Business Process Outsourcing (BPO)

Business Process Outsourcing is the first way in which outsourcing is done. Here only a particular task is outsourced. The BPOs could be given either front office or back office tasks, mostly relating to technical support, marketing, and payroll check.

  • Knowledge Process Outsourcing (KPO)

Knowledge process outsourcing is a higher level of outsourcing which requires more involvement and research by the worker. Analytical and technical skills become an important component of KPO. Content writing services are an example where knowledge is outsourced. 

Top 3 Risks Involved

Although the process of outsourcing is important to the outsourcing supplier, there are a couple of risks that are involved. The top three risks involved in this process are:

  • Relying on the Outsider

When a process is outsourced you have to depend on the third party company for the job to be done. This can result in loss of productivity since the outsourced task may not get the same level of attention and responsiveness as compared to business processes being done within the company. When it comes to the IT industry, if the software being used by both the parties is not compatible, it could lead to a major problem.

  • It is Not Your Own

No matter how beneficial outsourcing may be, at the end of the day the work done by your own employee is more reliable since he is familiar with the work culture and the atmosphere of the company. The services provided by the third party can be impersonal and inconsistent with the image the business holds.

  • It is Not Safe Enough

Lack of confidentiality is another major risk that business may face due to outsourcing. There is always the risk of a third party employee breaching security, putting your company secrets in danger. Loosely defined IPR laws make this risk a bigger problem. Trusting employees of a different company which is miles away is a major risk that should be considered.

How to Carry a Safe Outsourcing Transaction

Given the outsourcing risks involved, it is important for the company to have a checklist before an outsourcing transaction is done. The first challenge is to find a supplier that understands the work culture of the business and also treats the outsourced work as his own. This attitude will surely provide good results.

Additionally, the outsourcing company needs to pay attention to the legal issues that are involved and the contract must be such that the confidentiality of the business is maintained. Do not jump for the cheapest offer. While reducing costs is an important aspect, the business should look for a company that is reliable and experienced. If not, it may cause a great deal of loss to the business.

By keeping in mind these minute details before getting into an outsourcing contract, the risks of outsourcing can surely be minimized.

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