Outsourcing risk

Outsourcing costs are another issue. If they exceed expectations, the collaboration may lead to failure. Companies often underestimate the costs of finding and assessing an outsourcee, or the costs of managing relationship with the outsourcee and monitoring contract performance for compliance with the agreement (Mclvor 2006, p. 65). Such costs may 

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Reputational risk, legal risk, lack of bust and opportunism risk, intellectual property rights risk, information systems/information technology outsourcing risk... 

Almost half of companies that declared they use outsourcing indicated that they identify threats but do not manage outsourcing risk. As few as 28 per cent of the researched companies identify threats and undertake actions to curb risk in relationships with outsourcing partners. A similar munber of companies do not manage risk at all, which means they do not see the significance of threat identification and risk mitigation in the supply chain. Such an approach demonstrates a low awareness... 

Conscious hedging against the consequences of outsourcing risk consists in the application of penalties and clear terms of cooperation, with the scope of liability specified in agreements. The transfer of risk to insurance is a method rarely used. Half of respondents declared that they do not use any protection against potential problems. Conflicts and disputes are mainly resolved in line with formal procedures (64%). Some of the analysed companies, however, demonstrate a certain flexibility and conventionality (26%) as well as confidence (10%) in this respect. This means that, to a certain extent, the relationship between the supplier and the customer is based on partnership. 

Information risk Supply chain is one of the most collaborative environment in an organization thus, it inherently poses greater risks to the confidentiality, integrity, and availability of corporate information. They should consider the accuracy, timeliness and relevance of data shared among parties, information system security and disruption, intellectual property and information outsourcing risk. 

Facilities and Equipment The technical experts who have an understanding of pharmaceutical science, risk factors, and manufacturing processes related to the product are responsible for defining specific facility and equipment requirements. The equipment must be qualified, calibrated, cleaned, and maintained to prevent contamination and product mix-ups. It is important to remember that the GMPs place as much emphasis on process equipment as on testing equipment while most quality systems focus only on testing equipment. Control Outsourced Operations Quality systems call for contracts with outside suppliers that clearly describe the materials or service, quality specification responsibilities, and communication mechanisms. 

Again regardless of in-house or outsource development, document a list of features and prioritize them. Break the project down into short, timeboxed iterations, each focusing on one or two of these features (Chapter 5). Do not let the iteration deadline slip. Reduce the scope of the iteration if necessary. Implement features with high business values and high business and technical risks in early iterations. Make sure each iteration delivers a production quality partial system to solicit feedback and let the system grow incrementally. The project plan should be adjusted based on the feedback. It is OK if the initial project plan is not accurate. However, it should become more and more accurate as more iterations are completed. Test and integrate early and frequently. 

Which areas, then, should be outsourced Efficiency gains and reduction of capital employed have to be balanced against higher transaction costs and a considerable risk of losing internal knowledge. Services that can be clearly specified and planned would typically be purchased externally if this allows a cost reduction. Detailed engineering is one example, while breakdown maintenance clearly would not fall into this group. 

Such a market for trading chemical contracts would effectively help the industry separate the risk of asset ownership from both production and financial risk. Imagine, for example, if a pure commodity player could conclude forward contracts to lock in the price on most of its output volume and input raw materials. It could outsource the sales and logistics process to efficient transactional market makers and low cost logistics speciahsts, leaving it to focus purely on being distinctive in low cost operations. 

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