Question

Nike and others have really sprouted wings and taken the sourcing of materials to a whole new level. In your discussion, you take a rather optimistic view. How about the negatives associated with sourcing of materials, what are the negative consequences?

Answer 1

Solution:

SOURCING MATERIALS AND ITS DISADVANTAGES

The business of Outsourcing has become an industry in itself and is responsible for creation of multiple jobs across the world. Outsourcing is nothing but the practise of strategically allocating partial or entire work functions of the service or product life cycle to third parties or outside agencies/companies which are adept in running those functions in a cost-effective manner.

While proper outsourcing can be useful in achieving economies of scale and other commercial benefits, it could make the parent company shell out additional costs if not carried out carefully. Most commonly outsourced tasks include:

• Content Writing
• Financial Accounting and Auditing
• Marketing
• Customer Support Services
• Supply Chain Management (SCM)
• Human Resources Management (HRM)
• Talent Acquisition
• Software Development
• Research and Development (R&D)
• Tax Compliance
• Training
• Administration Services

Sourcing of materials from third party vendors and other suppliers is similar to outsourcing large operations or smaller sub-tasks. Several factors need to be taken into consideration apart from costs.

1. Implementation of QA and QC

Implementing Quality Assurance (QA) and quality control (QC) of raw materials is of paramount importance and the client company must ensure that the raw materials being procured have surpassed various quality checks and follow international standards such as ISO (International Organization for Standardization), IEC (International Electrotechnical Commission), the IEEE( the Institute of Electrical and Electronics Engineers), the AWWA (American Water Works Association) among others. Compromising on quality of raw materials could be detrimental to the quality and efficiency of the finished products, goods and services.

2. Hidden Costs

Client companies must never enter into any agreement or trade partnership hastily. This is because there are several sourcing and outsourcing companies which impose additional hidden costs which are mentioned in deliberately drawn-out contractual agreements and clauses with underlying fine print.

3. Risk of Losing Confidential Information or Trade Secrets

Sourcing of materials or functions to external entities could pose risk of losing confidential information and closely guarded trade secrets.

4. Miscommunication

On several occasions the client and service providers or suppliers may not be on the same page. This could lead to a lot of confusion and delay in completion of the product or service lifecycle. SaaS (Software as a Service) is one area where miscommunication between the various stakeholders could lead to multiple deployment runs or reworking on one or more modules/components. Remote communication via telephone or email could result in such miscommunication.

5. Change of Scope due to Translation

In projects which concern intellectual property (IP), the scope of the project could get changed or lost in translation. Hence, multilinguistic projects need to be verified thoroughly before release.

Thus, some of these negative consequences should be weighed in thoroughly before sourcing of materials or services to third-party vendors.

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