30 November 2007 | Helen Gilbert
Firms could slash outsourcing and supply chain risks including poor quality and late shipments by appointing "supply-chain integrators", an expert claims.
The comments by Panos Kouvelis, professor of operations and manufacturing management at the Olin Business School at Washington University in St Louis, follow allegations made against clothing giant Gap last month. Gap was accused of using child labour for some of its garments manufactured in India.
"There are hidden costs to outsourcing that every company needs to consider before looking overseas to manufacture its products," Kouvelis said. "Not only could you discover that a sub-contractor is using child labour, but you could also find that the quality is not what you expected. These factors affect the cost of outsourcing."
The professor claims firms can reduce risks by using integrators, which serve as connectors between major retailers and manufacturing suppliers overseas. They visit the suppliers to observe the manufacturing process, and therefore take on all the risk.
"By going through a supply chain integrator, it is no longer the retailer's problem if something goes wrong," he said.
"How the order is executed wouldn't be Gap's problem; their contract is with the facilitator, and the facilitator is the one who assumes full liability."