Five Questions to Ask Before Outsourcing Your B2B Systems
- July 5th, 2012
- By: Loraine Lawson
Recently, the UK bank RBS made headline when 17 million customers were frozen out of their accounts. The bank is faulting technology software, which it said failed to do an overnight upgrade, but many media pundits are blaming the bank for downsizing its staff and outsourcing a critical business function.
My guess: Those 17 million customers will hold the bank responsible, regardless. And a good portion of them will believe it’s because the bank offloaded a critical job to someone else.
Businesses can and do outsource nearly everything today, whether it’s manufacturing in China or tech support in India or processing power to Amazon’s cloud. It’s no longer a question of can you outsource it,” but an evaluation of whether you should.
Procurement leaders and supply chain managers should carefully consider the possible business impact of outsourcing B2B transactions, procurement and other supply chain management processes. Here’s a checklist of issues to consider before you outsource any business-to-business (B2B) functions:
1. Is this a critical B2B partner? If you’re managing hundreds of B2B partners, it may make sense to off-load some of the “paperwork” to someone else. But think again before you hand over management of business-critical suppliers. If the outsource firm fails to pay these suppliers on time, misses invoices or creates other problems, it can jeopardize your relationship with these valuable business partners.
2. Is this a critical business function? Even if you have a variety of suppliers, your supply chain may be a critical business function. Some businesses, including many retailers, rely on a first-to-market business strategy. Disruptions in the supply chain can mean the difference between closing and besting your competitors in a market. In this situation, the supply chain is too business-critical to outsource its management.
3. Is there a compliance issue? If you’re in a highly-regulated industry, your B2B processes may be critical to documenting compliance with local, state, national and international regulations. For instance, California requires manufacturers to ensure suppliers aren’t using child labor or engaging in other human rights violations. This requires visibility into the supply chain and documentation that are best handled in-house.
4. Is security so important, we need to keep the data in-house? While the cloud is one way to offload some costs for hardware and software, it also requires trust that the service provider will be able to protect your data at the same level you would if you kept it in-house. There are other considerations, too. For instance, some regulations require full disclosure if there’s a data breach. Are you will to risk the public relations hassle that may follow if your outsourced data is compromised, and you have to disclose it? For some companies, data security is too important to outsource.
5. Are there service level agreements you need to monitor or is agility important? Supply chain management solutions will alert you to problems with SLAs. Likewise, if you need to respond quickly to documents or you need to control the documents, then you may want to retain control of the B2B processes in-house.
Outsourcing is one strategic tool for reducing costs and redirecting staff, time and money to more strategic areas. The trick is to outsource smartly, without putting the company at risk.