The second pillar of the Make Vs Buy strategy is risks involved with any decision. The major risk factors involved in making a product in the home country or purchasing it from foreign countries are quality, reliability, and predictability of outsourced solutions or services. Along with these, there are risks inherent in the process of labelling and selecting the right supplier and structuring a workable ongoing relationship.
When we have numerous suppliers, a single failure in the supply chain may not be deadly. Even when the suppliers are making parts of an item instead of that completely furnished item, there will be errors in manufacturing. These errors should be identified before the products are assembled so that the faulty item cannot be delivered to the consumer directly.
We know outsourcing opens up a broad array of new risks. We need to be attentive of any potential pitfalls with producers and examine outsourcing partners on the basis of their importance to the company.
Operations in outsourcing that lead to failure of service could be overwhelming, for example, an IT network, a payroll processing system or element manufacturing, as compared to risks or problems like a glitch in a training program or a long-term product development plan, which is much lesser.
It is very important to acknowledge the risks that are related to the location of an external supplier. Apart from judging the source country’s political stability, companies require examining the safety and lead times of shipment schedule. Along with this, they have to label and examine potential secondary carriers or routes or search for other producers as a backup in a different area that supplies incremental volume during peaks in demand or disruptions of the primary source of supply.
When we merge the outsourced manufacturing of products or outsourced processes that demand distinct skills or assets, making it difficult or expensive to the resource, the supply chain management becomes a highly complex function. In fact, these risks through which a producer may exploit a customer’s highly reliable relationship by increasing prices or charging better terms (referred as hold up risks) can be easily handled with some external solutions.
This is a very important decision to make. One has to go through all the available options and select the best one out of them before making any commitments to the supplier because outsourcing agreements can be difficult to amend or break.