Risk alignment with outsourcing suppliers is essential

10 November 2011

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10 November 2011 | Angeline Albert

Procurement professionals and their outsourcing suppliers are unclear as to where the responsibility for risk management and due diligence lies between them, leaving both parties exposed.

That is a key finding Outsourcing in a brave new world, a report published by law firm NortonRose Group, which highlights the views of heads of procurement and chief information officers from 74 businesses.

According to the research, opinion is sharply divided on whether the customer or the supplier should take responsibility for political/regional risks. The research revealed only 8 per cent of providers thought they should manage such risk for an outsourcing project, compared with 49 per cent of customers who said suppliers should manage it.

The report is based on lawyers’ interviews with companies and their outsourcing suppliers in the UK and other parts of the world. Norton Rose said firms must openly talk to vendors about risks in different locations. While customers said suppliers should ensure they can operate in the location they have chosen, the report said procurement should familiarise itself with that area and consider a contingency plan.

Both companies and their suppliers agreed that capability analysis and financial checks were the most important due diligence activities. The report said some 65 per cent of companies do not conduct detailed due diligence on incoming workers provided by their supplier and said some vendors did not name key staff in outsourcing contracts. 

Mike Rebeiro, group head of technology and innovation at Norton Rose Group, said: “The majority of customers assume that their suppliers will have done the necessary due diligence on their own staff and do not see the need to repeat the exercise. This is surprising given the impact a single rogue employee can have on the reputation of a business and all associated organisations, as underlined by the scope of the Bribery Act 2010.”


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