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Resilience and Outsourcing

FEATURED PAPER

By Bernardo Nicoletti

Rome, Italy


Abstract

Today’s social-economic environment is turbulent and uncertain. The turbulence has tended to increase for a number of reasons. Demand in almost every industrial sector seems to be more volatile than was the case in the past. Product and technology life-cycles have much shortened. Competitive product introductions make life-cycle demand difficult to predict. At the same time, the vulnerability of the organizations to disturbance or disruption has increased. It is not only the effect of external events such as atmospheric events, strikes or terrorist attacks, but also the impact of changes in business strategy or war and terrorism. Many organizations have experienced a change in their risk profile as a result of changes in their business models, for example, the adoption of ‘lean’ practices, the move to outsourcing and a general tendency to aim at vendor consolidation. This paper suggests that one key element in any outsourcing strategy designed to mitigate operational risks is improved resilience. The paper analyze how to improve and manage resilience

Keywords: Procurement, Resilience, Outsourcing, Risk Management, Disruptions

Introduction

The environment is more and more turbulent and difficult to predict. On the other hand, more and more organizations use outside vendors to do their functions and processes also essential to their operations. The motivations are simple:

  • Add value to the customer;
  • Focus on the organization’s core business;
  • Gain in flexibility.

An interesting case is represented by outsourcing. This term refers to organizations that use external vendors to run their processes or sub-processes. For instance, organizations could outsource the management of a data center, the maintenance of computer applications, or similar. In recent years, there is an increasing interest in this business model. This is the move from one vertical enterprise to a highly integrated system of networked enterprises

In this situation, it is necessary to consider the risks that an organization may incur. One can cite extreme examples from this point of view. Think of what has happened in many organizations as a result of the disaster of the nuclear power plant in Fukushima. Many organizations have lost their supplies for a long time. Or consider the case of hard drives for personal computers. A disaster in a factory in Thailand has reduced dramatically the availability of the components for these products.

Much has been written and said on risks. It is interesting to examine how to protect an organization from such risks. The risks can be of a very different nature. This paper focuses on operational risks. In the so-called Basel Accord for financial services, the operational risks are defined as the risk of losses due to inadequacy or failures of processes, human resources and internal systems, or from external events. This paper examines how procurement can help in the management of these operational risks associated with outsourcing. From this point of view the resilience is a very important aspect to consider.

More…

To read entire paper (click here)

 


 

About the Author

pmwj43-Feb2016-Nicoletti-PHOTO

Bernardo Nicoletti

Rome, Italy

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Bernardo Nicoletti
is a lecturer at the Università di Tor Vergata, Rome, Italy. He serves as a Director in Transigma Emea, a strategy consultancy company specialized in process improvements and digitization in financial services with global assignments.

Bernardo has been active in procurement. He applies an innovative approach of Lean and Digitize in his consultancy and has described the methodology in one of his books on Lean and Digitize, published by Gower Press.

Bernardo worked with GE Capital as Program Manager of a Global Payment System, as CTO of GE Capital, and with AIG as CIO Latin America.

Cell: +39 348 470 7016

E-mail: [email protected]

Web Site: www.bernardonicoletti.com 

Blog: http://www.leandigitize.com/