Outsourcing and Third-Party Management
Outsourcing offers several benefits that must be evaluated based on the contract. The contracting party has the opportunity to delegate secondary demands, thereby reducing the burden on the internal team. Additionally, there are no staffing shortfalls during employee vacation periods. On the other hand, risks involving the contracted company (and its employees) must be mitigated through Third-Party Management.
Generally, this type of management is divided into stages, ranging from supplier qualification to performance and delivery analysis. Furthermore, there is the requirement that the activity complies with applicable legislation and company values.
Below, we will explore this concept further, covering its importance, why it is necessary, key process stages, and other relevant points you need to know about third-party management.
Third-Party Management – where to start?
First, it is necessary to understand what third-party management is. Third-party management goes hand in hand with supplier management. Within the supply chain, one of the main focuses of third-party management is ensuring compliance and efficiency in service delivery. In this sense, the concept of "service delivery" encompasses a diverse range of activities.
The provision of outsourced services does not create an employment relationship with the contracting company, but rather with the service provider. However, the outsourced work relationship is governed by rules, such as restrictions on hiring for core business activities. Nevertheless, following the legislative change in 2017, this became permitted. Therefore, a core premise of third-party management is remaining continuously updated on legal matters.
The importance of third-party management within an organization
One of the most critical factors for business leaders is cost reduction. The business-to-business (B2B) relationship reduces investments in training, for example, in addition to decreasing payroll taxes and liabilities.
Another key point is workforce allocation. Generally, outsourcing targets non-core activities within the contracting company's sector. Consequently, the focus on the core business becomes greater and more strategic. As a result, the company ensures productivity and directs investment efforts toward more specific needs.
However, this relationship does not exempt the company from certain risks. This is why effective management is so crucial. Risks mitigated by proper management include: data breaches, operational risk, compliance issues, brand and reputation damage, and even financial losses.
Ensuring the security of confidential and sensitive data is fundamental to any risk management strategy. That being said, it is highly relevant to consider how much the company's reputation depends on this relationship between the contractor and the service provider, as well as profitability, especially regarding failures that compromise productivity.
Finally, it is worth highlighting the importance of aligning with Compliance best practices through actions and measures that comply with mandatory regulations and standards.
Key stages for efficient third-party management
Earlier, we summarized what third-party management is and its importance. Now, let's explore the key stages. First, a practical observation: the focus of the following list—and of third-party management itself—is centered on identifying suppliers that operate in accordance with current labor laws and fully comply with the legal obligations within the provider's industry. This is a fundamental premise for avoiding risks for the hiring company.
Now let's move on to the top 5 stages of efficient third-party management.
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Demands
To begin, it is necessary to assess demands. In this stage, third-party management conducts a type of "inventory"—analyzing and identifying operations to determine which activities can be outsourced to generate more benefits than risks.
Generally, the most common activities focus on:
- Security and Cleaning
- Logistics and Deliveries
- Machinery Maintenance
- IT and IT Support
- Grounds and Facility Maintenance
- Advisory and Consulting
- Among others
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Onboarding and Qualification
Once outsourcing needs and opportunities are identified, we move to the service provider onboarding and qualification stage. To ensure effective demand fulfillment in third-party management, conducting a qualification process is highly recommended. A thorough pre-analysis of suppliers is performed.
From compliance to document verification, this practice ensures the best cost-benefit ratio, along with security and efficiency. In other words, verifying whether the supplier has the capacity for delivery and contract compliance, as well as legal adherence, mitigates risks and secures future advantages.
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Workforce Allocation
Once suppliers are mapped, it is time to integrate the outsourced workforce into the company's operations. That is, the service provider's employees must be trained according to the contracting company's internal policies. This training should be stipulated in the contract and integrated into the workflow schedule.
Additionally, identification and access criteria must be established. This ensures that the contracting party's internal data remains protected.
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Performance Evaluation
The 4th stage of third-party management follows the same logic as one of the supplier management phases: periodic performance evaluation. Just as performance indicators are evaluated in supplier management, the same applies to the performance of outsourced personnel. In this case, monthly monitoring is recommended. This practice helps validate whether the expectations set during contracting are being met.
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Supplier Auditing and Monitoring
Finally, a field audit should always be conducted. In other words, monitoring service providers ensures ongoing compliance with industry standards. Inappropriate tax practices, lack of mandatory training, and unmonitored working hours are among the failures and inconsistencies typically identified through periodic audits.
A field audit is one of the supplier monitoring measures that identifies potential risks. This audit should be periodic to prevent unexpected issues regarding labor lawsuits and other legal obligations that could impact, for instance, the contracting company's reputation.
Other Relevant Points
- Driving digital transformation has become the best way to efficiently optimize third-party management. Advanced digital tools and resources make data and information management more precise, enhancing decision-making.
- Digital tools for supplier qualification enable automated inquiries into public records with up-to-date information.
- Integrated platforms with cross-functional features that cross-reference information allow the development of partner directories with enhanced data security.
- Software systems that generate alerts for expiring documents within a user-friendly interface facilitate management by notifying which suppliers need to resubmit or update documents, data, or certifications.
To mitigate risks and focus on your core business, implementing efficient third-party management is of paramount importance. Contact Level Group and speak with our team of experts.
