Managing risk through collaboration with outsourcing partners

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Outsourcing has become an important issue to consider for businesses across a range of industries as they react to the global economic downturn and look to cut costs to their own payroll. This is no different for the pharmaceutical supply chain. However, there are many other reasons why collaborating with outsourcing partners can be good for the supply chain through good times and bad.

In December's edition of Supply Chain Digital, it has assessed the top ten reasons why more businesses should consider outsourcing. Its biggest reason for outsourcing is the lower wages that can be achieved overseas. This is most prominently highlighted when one considers that India's per capita income is $1,371 (872), compared to $46,860 in the US, the news provider reported. Aside from the financial reasons, outsourcing allows the companies to focus on core business processes by removing other functions. This gives businesses the opportunity to increase work flow and finish projects more efficiently. Other reasons cited by the magazine include lower corporate tax rates in countries including Ireland, Hong Kong, Singapore and Taiwan, as well as lower regulatory costs overseas.
Medical equipment manufacturer Hologic is just one company to outsource to DSV Solutions to handle operations in the UK and Ireland. Meanwhile, a report from Everest Group has predicted that outsourcing to China will more than double in value by 2015, growing each year by 20-25 per cent. It will result in a market worth around 6 billion. This has largely been down to China benefiting from economic development while other nations have suffered in recent times. The report, seen by Supply Management, shows that more than 15 delivery centres have been set up or expanded in China in the past year, particularly within second-tier cities.
"China can serve as a risk diversification alternative to serve North America and Europe," said Amneet Singh, vice-president of global sourcing at Everest Group. It also claims that outsourcing partners can have better skills in certain areas such as customer service, while staff do not have to be trained in these areas either. This could be one of the reasons why companies such as GlaxoSmithKline are familiar with outsourcing. The company recently signed a contract with Tranzone Logistics for its operations handling in the Middle East, using a warehouse in the Jebel Ali Free Zone.
Meanwhile, logistics firm UPS is strengthening its knowledge of healthcare by opening its first regional distribution facility in Singapore and launching a door-to-door cold chain transportation and monitoring service in Asia. It has also launched a PharmaPort 360 airfreight container, specially designed for reliably transporting healthcare and pharmaceuticals products along the supply chain, making it more attractive to pharma companies.  Contracts with outsourcing firms also offer peace of mind, Supply Chain Digital claimed, as these firms are responsible for any negligence and poor performance.
Finally there is the issue of risk management. Any new product or service launched by a business can be a huge risk, but by outsourcing, operations can be "fine-tuned to meet skyrocketing demand" or, indeed, a lack of demand.

However, there are certainly issues involved in aligning risk with outsourcing suppliers. Confusions can occur about who is responsible for risk management and due diligence supply chain professionals or the outsourcing suppliers? This confusion was raised in a report titled Outsourcing in a Brave New World by NortonRose Group. It showed that eight per cent of providers thought they were responsible for managing political and regional risks for an outsourcing project. Almost half of customers said it was up to suppliers to manage risks. It also found that 58 per cent of suppliers have no dedicated risk manager and half keep a written record of risks for projects.
"While due diligence procedures appear to have tightened in the past three years, particularly as the regulatory landscape has changed, it is incumbent on the customer to devise a due diligence process that will properly test and evaluate potential suppliers," said Mike Rebeiro, group head of technology and innovation at the legal practice.
"As many organisations have found to their cost, there is no 'one-size-fits-all' solution for risk management and it should never be seen as a box-ticking exercise - customers need to visit a potential supplier, test their technology and speak to other customers of that supplier."
Other startling findings of the report showed that 65 per cent of companies do not conduct detailed due diligence on the incoming key personnel provided by their supplier. Mr Rebeiro stressed that companies must undertake due diligence on any outsourced elements, as well as openly discuss with customers the risks of doing business in certain regions. Another issue could be deciding on what risks are more important than others. To the majority of customers, reputational damage is a primary risk, the report found, but suppliers put service performance failure as their main issue. One area in which both parties do agree on is that outsourcing reduces costs. Eighty-seven per cent of customers and 86 per cent of suppliers said cost reduction is their main motivating factor to outsource. Flexibility was cited by 69 per cent of respondents.
While outsourcing is one way that pharmaceutical companies can manage risk, another could be collaborating the supply chain with other businesses. An article in Supply Chain Standard has reported that collaboration has moved from being a boardroom buzz word to a real solution during the economic downturn. Companies can take examples from the fast moving consumer goods and chemicals sectors, which have been operating in this way for some time.
Collaboration not only drives down costs, but it can also see supply chain human resources shared between companies, as well as the transfer of best practice. Sharing information is crucial, the article stated, with software-as-a-service helping businesses manage risks together. Pharma supply chain professionals have a range of options available to them and it is now more important than ever to discuss the risks involved with any outsourcing partners as the global economy continues to bite.
Supplier Collaboration and Risk Management will be key discussion topics at Logipharma 2012 (24 -26 April 2012, Geneva) Europe's leading pharmaceutical logistics conference. Share ideas with over 120 Pharma Supply Chain experts, hear best practice case studies, challenges faced and lessons learnt from leading pharma industry opinion formers and walk away with practical solutions to your supply chain optimisation challenges.


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