I have been advising lots of multi national firms recently on how to get outsourcing right. Key firms as part of their cost efficiency management a response to the recent trends both in the USA and UK with the economic meltdown, have been looking to reduce costs and there is no better way to do it but outsourcing.
However, outsourcing can bring its own problems, and what you do not want to do is outsource and then come across the problems that have brandished a leading retailer such as Gap and Primark, with allegations of child labour being used to manufacture their goods. This is inevitable as the outsourcer loses control of the employees working on outsourced products, working conditions, and day to day running control. In order to protect ones reputation and to avoid the media spin with negative publicity such as the exploitation of workers in the developing world being attached to a retailer who outsourced its manufacturing, certain steps need to be taken when it comes to the contractual agreement to limit the potential damage.
First of all the retailer needs to choose a supplier that has a known reputation and this requires thorough research in the suppliers track record of honouring conditions set for the outsourced agreement and adherence to the minimum standards (in accordance with the International Labour Organisation and local state law) required for the contract to be operational. This warranties and safeguards will ensure that the retailer does not put his/her brand in the hands of a wrong supplier who could effectively ruin the brand of the retailer that has taken years to accomplish. The jurisdiction of the outsourced project needs to be investigated as well as the laws and customs applicable to the contractual agreement so that the contract can take this into account. Thus a lot of background research should take place before a supplier is selected. Remember you are placing your brand into the hands of a third party so need to ensure it will be kept in safe hands.
Warranties need to be given not just to the ultimate quality of the product produced but as also to ensure that there are satisfactory working conditions. This should as far as possible take into account local laws but also intentionally recognised standards set out by organisations such as the International Labour Organisation.
The supplier chosen should have a track record of adherence to these values and also ensure that there is a provision in the contract to terminate the contract on any breached of these standards, warranties and guarantees. These guarantees should also extend when the supplier sub contracts the contract internally to a third party. There should be an express clause that sub contracting cannot take place without consent of the main contractor so you can check out the proposed sub contractor adherence to the standards.
In order to ensure adherence to the minimum contracting terms in the contract random checks should take place by independent personnel deployed to the outsourced country to check upon how the product is manufactured and most importantly, the conditions and by whom. So a suitable inspection programme also needs to be agreed wit the outsourcer and the outsourced supplier.
Only random inspections by independent third parties would ensure that minimum standards are adhered to, and, ultimately a quality mark should be introduced that a product outsourced is free from child labour! Consumers would find this helpful.
Finally, the contract should, have a clear exit plan embedded into the contract; this should include who bears the cost of halted production, assets, products and employees if the contract is terminated. If things go wrong a resolution should be attempted to resolve breaches if minor as there can be real consequence for the employees of the outsourced goods if the outsourcer simply attempts to terminate the contract. In a country such as China or India there is no state system that can act as a safety net when one loses their job and this needs to be recognised when considering termination.
I hope the above is useful it is only a real basic general guide into avoiding some outsourcing pitfalls that could turn an outsourced product into a nightmare for the outsourcer! copyright
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