How healthy is your localization partner’s supply-chain?

In the July/August edition, the Harvard Business Review had an interesting article entitled Just How Healthy Is Your Global Business Partner which highlighted how corporations were changing the way they assessed outsourcing relationships. Although the article profiled manufacturing I thought it was particularly relevant in the localization business which traditionally relies so heavily on outsourcing and subcontracting as a business model.

Companies in advanced economies were shocked to see suppliers in Asia and elsewhere simply disappear as orders from abroad contracted. In China some 67,000 factories went bankrupt, according to that country’s authorities, in the first half of 2008—even before the U.S. financial crisis sent the global economy into a tailspin.

Outsourcing and subcontracting are rife in localization at a number of levels.

Typical practice for global scale MLV’s is to subcontract to SLV’s on a language-by-language or region-by-region basis. The problem for the company procuring the localization services is that they are disconnected from those SLVs and have no way to predict the stability of the companies that are actually going to be performing the work. Procurement departments and selection committees will often spend a great deal of time  reviewing financial stability of a potential localization partner – work which is rendered useless if the actual production is performed by a completely different organization.

I would recommend anyone tackling a vendor consolidation to start begin asking questions that will identify stability issues not just at the MLV / master contractor level but at each point in the production supply chain. Here are some key questions:

• request third-party validation of each sub-contractors financial health and its sales or operational history,
• ask to see references from other or past partners,
• ask to see ongoing processes for tracking sub-contractor risks (a buyer, for example, should want to see a map of the partner’s supply chain including contingency), and
• develop backup options for each important sub-contractor.

Having confidence in a trading partner means having confidence that the partner knows what to do in the event of a breakdown in their subcontractor supply chain. Where subcontractors are part of the equation, as Josh says,

These practices will give both sides greater confidence that a crisis won’t wipe out their trading partners and leave them scrambling to find new ones.