Outsourcing Disruptions on the Increase

Service failures by outsourcers is now one of the top three causes of supply chain disruption, a survey by the Business Continuity Institute (BCI) published today has found.

The survey revealed failure of service provision by outsourcing suppliers has doubled from 17 per cent in 2011 to 35 per cent in 2012. The reasons behind the rise are largely due to problems with suppliers providing IT services in the retail, financial and government sectors.

The report, supported by the Chartered Institute of Purchasing & Supply (CIPS), Zurich and DHL, was based on the responses from 532 organisations across 68 countries.

Lyndon Bird, technical director at the BCI, commented: “The jump in disruption caused by outsourcer service failures underscores the importance of viewing service chains differently from traditional product supply chains when it comes to resilience planning. Service chains are more complex, and can be harder to unwind or replace quickly when they fail.

“In-house skills are also lost over time, so dependency on the outsourcer increases, and third, decisions to award contracts are often based on transferring a problem or cost savings, not necessarily the criteria for selecting a product vendor.”

Over 70 per cent of organisations reported at least one supply chain disruption in 2012, with 39 per cent of disruption originating from a tier below the immediate supplier. The leading cause of supply chain disruption is unforseen IT problems, with more than half of organisations experiencing this, followed by adverse weather conditions.

Further, the report discovered that financial costs arising from disruption are higher than in 2011, with one in five organisations reporting a single incident loss of more than €1 million (£800,550).

CIPS CEO David Noble said in a statement: “We are seeing more and more debate around the importance of risk, how to reduce the impact of risk and mitigate against it but it’s still not enough – we need to see more action.  Stakeholders and shareholders should be regularly asking their senior management teams what they are doing about supporting their supply chains and what plans are in place if unforeseen disruptions do occur.”

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