I'm not sure where this thought process comes from, but I have met with several people from a variety of businesses that believe outsourcing the creation of their products removes the risks to their company. Again, I am not sure of the thought process behind this. I can tell you however that this is entirely wrong. It may be more cost effective, at least on the surface. But entirely removing the risks? Completely incorrect. As it was put directly to me, we have no risk in that area we outsource our production, therefore, we outsource our risk.
Let me provide a little bit of insight here, if you are reading this and believe you are removing your business risk I hope you will take the time to reevaluate this.
So let's say your ABC Company, Inc. and you sell high end computer networking equipment. Your headquarters is located in Silicon Valley, and you just landed a contract to supply your products to a customer in San Francisco. You are hoping leads to additional future contracts and a long-term commitment. Great. The products have your company name and logo stamped all over the products and represent your brand and company image.
The first several batches produce outstanding quality products. You gain a long term contract with your San Francisco client and land several more clients with large purchases more than doubling the product orders. Your vendor assures you everything is running smoothly and as expected. Your products hit the market on schedule.
Suddenly increased calls start coming in to your support team and it is evident that it is not normal based on previous call volume. Something has obviously gone wrong, but what?
Several members of your support team spend hours researching the issue and discovered that the original software code being used has become corrupted. Over time this leads to additional errors compounding the problem until the device no longer functions as expected producing errors and causes constant rebooting. All client devices sold in the last three quarters need to be updated and will delay the release of a new highly anticipated product by at least a month. New codes have been provided to the vendor, but you also need to investigate why this occurred and why it was not caught sooner in Quality Assurance and Testing.
After deeper internal investigations it turns out that the the vendor faced workforce issues and internal workforce related actions. They could not keep up with the demand to produce your products under the normal process so they decided to skip some of the steps they thought were unimportant to keep up with demand. One of those steps was testing products coming off the production line.
It has taken you a month to get things back to normal with the vendor and the launch date for your new product has been set. It is only a week away, and the first of the shipments is set to arrive in two days. Then you encounter your second major problem. Workers at the port announce they are going on strike on the very same day your products are arriving.
You miss the launch date. You are able to get products flown in, but they arrive one week after the expected launch date. Your clients are unhappy with you, and orders start to fall off, and one of your major clients decides to go with a competitor instead who has just launched a new product of their own. The major cable business news networks are focusing in on your mistakes, and shareholders are unhappy as your stock price tumbles 30% on the days news.
I am using the above scenario as a way to show that ABC Company Inc. although they may be outsourcing their production, it is their company that faces the risk when it comes to problems with their product. These problems or risks can be anything from poor quality, workforce issues, all the way through to the supply chain, and the overall image of your company.
You face these same risks if you are producing the "widget" yourself or if you outsource the production. In fact, in many cases outsourcing could increase your risk but will in most cases never reduce your risk.
At the end of the day if the product has your company name on it, or is a major brand your company produces any issues that arise will impact your business. Plan ahead and assess your risk accordingly.
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