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PKF Australia

Accountants and Business Advisers

Risks for SME's in outsourcing supply chains

Risks for SME's in outsourcing supply chains

Posted 20 Jun 16

With the continued reduction of barriers and overhead costs surrounding the outsourcing of business processes and functions, our approach to managing the associated risks facing governance must evolve to meet the changing business environment. Particularly from an SME governance perspective, it is imperative that the risk management processes remains one step ahead of the new opportunities faced by Australian businesses.

Supply Chain Risk

In addition to the obvious financial considerations, there are many additional variables which management need to consider when outsourcing activities in their supply chain. Commonly outsourced supply chain activities range from warehousing and logistics, through to manufacturing, procurement and the packing and delivery of customer orders.

The level of influence (or lack thereof) that management would maintain over their supply chain activities under an outsourcing model can lay the foundation for many of the associated risks. One aspect that management need to consider prior to any outsourced supply chain arrangement is whether they would be outsourcing any of their key competencies, and potentially foregoing their competitive advantage.

Qualitative factors such as production capacity, quality control, inventory lead times and operational stability of the outsourced party should remain at the forefront of governance decision-making throughout the assessment of outsourced supply chain opportunities.

Conclusion

While the prospect of reduced overhead costs through the outsourcing of administrative, and other labour-intensive activities can be appealing to SMEs, it is the role of governance to ensure that their policies and procedures prepare their business for the road ahead.

If you have any questions regarding how to manage outsourcing risk from a governance perspective please do not hesitate to contact Charles McKee and Ken Weldin at PKF on 03 9679 2222.


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