HR SOURCING DECISIONS AND RISK MANAGEMENT

Organizations often make “sourcing” decisions based on offshoring and outsourcing practices. As discussed in previous blog article there are two major issues that can be identical as drivers for sourcing choices. Mainly concerns about reliability, for an instant will they deliver? and responsiveness, can they meet changing needs? (Cappelli,2011). However, decision to outsource operation considered as key factor to gain competitive advantage of any business. Hence, organization need to make sourcing decision keeping those risk in mind and, in turn, require risk management approaches. Indeed, outsourcing any business activity creates potential risks as well as benefits: Companies can find themselves overly dependent on suppliers, and they can lose strength in strategically core competencies (Adler, 2003). Failure to manage outsourcing risk can have the following impact ( Knowledge Leader blog, 2018):

·         Reliance on third parties whose objectives run counter to the entity’s plans

·         Reliance on third parties whose performance runs counter to the entity’s plans

·         Reliance on startups or other vendors that may not be in existence by project completion

·         Reliance on vendors with immature infrastructure may be unable to provide service, impacting its customers

Problems of reliability and responsiveness are much more like risk, which can be estimated with some precision, than true uncertainty in that we can anticipate their boundaries (e.g., the probability of a fire in our location) because they occur often enough. Operations research scholar Brian Tomlin categorizes possible solutions to the risks of sourcing problems as falling into two camps. The first are mitigation tactics that take place in advance of the problems. A human resource example of a mitigation tactic might be to maintain a staff of “relief workers” who step in to replace absent workers in assembly lines or other lower-skilled jobs. The second set is contingency tactics that go into place only when the problems occur. A standard contingency solution to the HR reliability problem of absent workers is to call in a temp agency to provide substitutes when workers are absent (Cappelli,2012).

 Exploring the strategic sourcing best practices and building a strategic sourcing team are tips to effectively implement strategic sourcing processes in order to overcome sourcing challenges. Following practical strategic sourcing best practices can be adopt (RFP360,2019);

·         Eliminate supplier relationship silos with RFP technology

·         Identify your organization’s strategic sourcing team

·         Explore strategic sourcing best practices

·         Do your homework on potential vendors’ history and experience

·         Ask the right questions to get the best results

·         Make your project expectations clear

·         Create a mechanism for vendor feedback

Top 4 strategic sourcing best practices:

·         Maintain open channels of communication

·         Think beyond the price tag

·         Evaluate strategic suppliers regularly

·         Issue the right request at the right time

It isn’t enough just to have a strategy for managing sourcing risk, however. It is important to have the most effective strategy. One place effective risk management strategy is explicitly calculated in human resources is in sports, where individual employees are both incredibly expensive and crucial to the “product” outcome.

Outsourcing initiatives usually associated with some combination of benefits but with potential to increased risk to the organization. When organization adopt to implement strategies and managed well, adverse effect of those risks, both internal and external to the company can be avoided and will beneficial for business performance of the entire organization (Deloitte,2008).

 

Reference:

Cappelli, P.(2012) Managing Business Risks from HR Sourcing. The world financial review.[online] Available at https://worldfinancialreview.com/managing-business-risks-hr-sourcing/, [Access on 29^th April 2022].

Cappelli, P.(2011) HR Sourcing Decisions and Risk Management. DOI:10.1016/j.orgdyn.2011.07.008, [Access on 29^th April 2022].

Adler, S. P.(2003) Making the HR Outsourcing Decision. Massachusetts Institute of Technology. [online]Available at https://sloanreview.mit.edu/article/making-the-hr-outsourcing-decision/, [Access on 29^th April 2022].

Protiviti Knowledge Leader ( 2018) What is Sourcing Risk.[blog entry]26 July.San Francisco:United State. Available at https://info.knowledgeleader.com/what-is-sourcing-risk, [Access on 29^th April 2022].

RFP360 (2019) Strategic sourcing guide: 7 steps and best practices.[online] Leawood:UPG Solutions. Available at https://rfp360.com/strategic-sourcing/, [Access on 29^th April 2022].

Deloitte (2008) The Risk Intelligent Approach to Outsourcing and Offshoring, [online] United State:Deloitte Development LLC. Available at https://www2.deloitte.com/content/dam/Deloitte/co/Documents/risk/InteligenciaFrentealRiesgo/No.8-Risk_riskintelligent_Outsourcing021208.pdf, [Access on 29^th April 2022].