Definition:
The supply chain is the structure of vendors, manufacturers and other firms that provide you with the products and services that you need to operate your firm. Some supply chains are simple and straight forward. If you want to buy pencils, you might order it directly from the factory that produced them. Alternatively, you might buy from a supplier who provides you with all of your stationary needs, who in turn orders from the manufacturer.
However, outsourcing generally requires complex supply chains, which can lead to unexpected consequences for the performance of an outsourcing contract.
In a typical outsourcing contract, you are ultimately hiring people to perform work for you. However, you are not hiring them directly, instead you are hiring an outsourcing firm that will hire and manage the people who do the work for you. These workers may work inside your firm, at another location or in another country. The farther away the workers are, the more likely that the supply chain will be more complicated.
For example, you might hire an offshore vendor in China to staff and manage a financial research function for you. You have a contract with the vendor in China, but Chinese vendors, especially small vendor with limited resources, must generally make use of other vendors to deliver the service you need. They may have to rely on a recruiting firm to find the workers you need. The vendor may train your workers in how to do financial analysis, but they may also use another company to improve English language skills.
Likewise, rather than run their own IT department they may sub-contract out the purchase, installation and maintenance of all internal IT services.
You have only one contract, the contract with the Chinese offshore vendor. Your contract may have stipulations about how all services are run (including recruiting, training and IT) but the existence of other contracts, with unknown clauses and stipulations, may make it far more difficult to effect changes or improvements to your ongoing program. Having so many different companies involved introduces new risks (security, confidentiality of work, management of staff) into your operations.
Alternatively, you can develop stipulations in your contract that the vendor is not allowed to outsource, sub-contract or use any temporary workers. This can resolve or at least mitigate risk issues, but it will undoubtedly increase cost and may make it difficult to staff at certain times, or increase the time it takes to replace a member of staff when they leave. Furthermore, vendors may agree to these contract restrictions, but if you are the only client that imposes these restrictions on the vendor, over a period of time different managers (who are unaware of the contract restrictions) may make changes in your operations that you are not aware of. If you have a lengthy list of contract restrictions, you also need to have frequent and thorough audits to ensure that these restrictions are followed.
The supply chain is the structure of vendors, manufacturers and other firms that provide you with the products and services that you need to operate your firm. Some supply chains are simple and straight forward. If you want to buy pencils, you might order it directly from the factory that produced them. Alternatively, you might buy from a supplier who provides you with all of your stationary needs, who in turn orders from the manufacturer.
However, outsourcing generally requires complex supply chains, which can lead to unexpected consequences for the performance of an outsourcing contract.
In a typical outsourcing contract, you are ultimately hiring people to perform work for you. However, you are not hiring them directly, instead you are hiring an outsourcing firm that will hire and manage the people who do the work for you. These workers may work inside your firm, at another location or in another country. The farther away the workers are, the more likely that the supply chain will be more complicated.
For example, you might hire an offshore vendor in China to staff and manage a financial research function for you. You have a contract with the vendor in China, but Chinese vendors, especially small vendor with limited resources, must generally make use of other vendors to deliver the service you need. They may have to rely on a recruiting firm to find the workers you need. The vendor may train your workers in how to do financial analysis, but they may also use another company to improve English language skills.
Likewise, rather than run their own IT department they may sub-contract out the purchase, installation and maintenance of all internal IT services.
You have only one contract, the contract with the Chinese offshore vendor. Your contract may have stipulations about how all services are run (including recruiting, training and IT) but the existence of other contracts, with unknown clauses and stipulations, may make it far more difficult to effect changes or improvements to your ongoing program. Having so many different companies involved introduces new risks (security, confidentiality of work, management of staff) into your operations.
Alternatively, you can develop stipulations in your contract that the vendor is not allowed to outsource, sub-contract or use any temporary workers. This can resolve or at least mitigate risk issues, but it will undoubtedly increase cost and may make it difficult to staff at certain times, or increase the time it takes to replace a member of staff when they leave. Furthermore, vendors may agree to these contract restrictions, but if you are the only client that imposes these restrictions on the vendor, over a period of time different managers (who are unaware of the contract restrictions) may make changes in your operations that you are not aware of. If you have a lengthy list of contract restrictions, you also need to have frequent and thorough audits to ensure that these restrictions are followed.