The Benefits and Risks of Outsourcing Supplier Management

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 business processes has its risks—what solution doesn’t? But it has its benefits, too. This article outlines the pros and cons to consider when outsourcing supplier relationship management.

desktop with smartphone and laptop for managing supplier data

Benefits

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

    This is the single-greatest benefit of outsourced data management: the company is saving money. Consider reinvesting the cost savings back into the organization. Perhaps those newfound savings could be diverted to marketing.

  2. Lower company costs, gain compliance

    You specialize in whatever products or services you sell; your supplier data firm does, too. And since they specialize in vendor management systems, their expertise lies in the peculiarities of compliance—from W9s to the master file.

  3. Meet demand

    Maybe business is good—too good, in fact. Accounts payable is struggling to keep up with updating the master vendor file. Payment information firms can handle the influx in demand without hiring headcount, thus allowing accounts payable to improve efficiency and maintain current labor costs.

Risks

  1. Unanticipated costs

    No business can prepare for the unexpected. Preventing unanticipated company costs, then, comes down to setting proper safeguards. Fluctuating business costs happen in any industry; unintended costs from the management partner, 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 vendor onboarding, an ounce of prevention is worth a pound of cure. Developing a transition process—a meticulous documentation of the day-to-day of the data managing process—will alleviate these woes. However, no amount of preparation can plan for the unexpected interruptions. The key, then, is to facilitate timely, open communication. Next, document and create unique workflows for each of these on-the-fly processes. Doing so will also help if the data company fails to meet quality expectations (see below).

  3. Reduced quality

    This is the greatest business risk in outsourcing supplier information: reduced quality of work. Hopefully, you’ve done your due diligence and vetted the outsourcing companies that will be managing vendor data.

    Consider keeping an up-to-date list of alternative firms who could step in if the current service provider fails to deliver quality. You may already have relationships with sales reps at these firms from your initial vetting process, so note those points of contact, as well.

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 procurement, accounts payable, 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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