Commentary | IT Matters

Reducing Supply Chain Risk by Outsourcing Technology

Tags: Logistics I.T., Supply Chain Management, Risk Management

Scott Brown is Executive Vice President of Global Cloud and Customer Support Services at IBS.

Supply chain risk management is a major concern for many companies. Risk management data would influence board-level decisions for 70 percent of respondents to a Gartner IT Risk Management Survey, up from just 46 percent a year earlier.

While data loss and the threat of cyber-attacks are the most well-known security issues, there are three others on the minds of shipping and logistics professionals:

  1. The lack of staff capable of using legacy technologies
  2. Contingency plans for technology failures
  3. The ability to scale as the result of mergers and acquisitions

 

Legacy Tech Hurdles

Millennials, who comprise a growing percentage of the workforce, are professionals accustomed to living their lives dependent on smart devices and accessing Web technologies. So when employees can’t leverage legacy technology, clients could be at risk.

Over time, legacy technology fails to keep up with industry-wide advancements. Concurrently, it inhibits the recruitment and retention of the best and brightest. Companies have a two-fold problem.

Employing people with the right skillsets saves time and money. It also translates to a unified workforce committed to common business objectives. On the other hand, the wrong skillsets mean mistakes, poor morale, and, in turn, poor customer response times and customer service.

To fill the legacy tech talent gap, some organizations hire managed services providers – especially as younger professionals join the workforce and experts retire. Managed services providers absorb the downside risks of technology talent gaps. As a result, organizations focus on what they do best and leverage their employees for high-functioning, strategic initiatives.

Tech Breakdowns

An organization may deploy the most cutting-edge technology and boast the most impressive IT departments, but technologies and systems can fail. Hardware failure is an important risk factor to consider – one that can be as damaging as an external or internal hack. One has to ask, “What is my level of risk tolerance?” Depending on the answer, certain back-up hardware and disaster recovery scenarios come to the forefront. Recovery Time Objective (RTO) and Return to Service (RTS) are just some of the important measurements to consider.

Among U.S. businesses, 71 percent lost anywhere from $125,000 to $17 million from just 10 hours of downtime per year, according to a recent survey from market research firm IDC.

System failures can have particularly huge implications for warehouses. Some can’t afford to experience downtime even for an hour. In some industries, 10 minutes of downtime can equate to a million dollar loss. For pharmaceutical and food distributors, downtime can mean the death of the organization. It also can impact human lives if the supply chain is disrupted.

For some organizations, the thought of duplicating systems on-site does not sit well with executives or logistics professionals managing those systems on a daily basis. It may make sense to seek outside help to manage such details on-premises, or outsource to a third-party provider’s data centers. Any strategy in this area should be designed with the assumption that negative events will occur.

Moreover, while companies can demand only so much from suppliers, they should require some level of redundancy to ensure operational consistency. It’s important at the outset of a partner relationship to determine which processes can and cannot afford any downtime.

The Need to Scale

Managing one’s own infrastructure is a formidable task. What happens when if there is a merger or acquisition? Using an outside provider to host or augment infrastructure gives an organization the ability to scale appropriately, and can help the company remain focused on core competencies and avoid the distractions that sometimes take businesses off track.

Outsourcing infrastructure to deal with immediate pressures may not always seem appealing to executives, but its no different than purchasing car insurance, health insurance, and umbrella policies for themselves and their families. The same approach should hold true for the businesses they run.