Create an Effective Outsourcing Policy

Outsourcing Policy Template

Nearly every business outsources some services or functions to a third party. Learn how to create an effective outsourcing policy in this article.

Your suppliers and service providers need to be as compliant as you are!

What is Outsourcing?

The general definition of outsourcing is where a business choses an external provider to perform one or more business functions or services. Outsourced functions vary greatly, from delivery and mailing options, through to information security and shredding services.

A company that opts to outsource any of its business functions has legal and ethical obligations. They must ensure that the provider is appropriate, fit for purpose and compliant with any contractual or regulatory requirements. The business must also monitor the outsourced services to ensure they are delivering adequate results.

Why Choose to Outsource?

Each business has different reasons for outsourcing certain functions. There are some services that can only be provided through a third party, such as postal services or accountancy. However, for other functions there are generally 3 reasons to outsource: –

  • The business is unable to carry out the function in-house and therefore uses an external service provider. This can be due to lack of resources, skills, time or space.
  • A cost benefit analysis has shown it is more cost effective to outsource the service. This can be with services such as delivery or waste disposal for which the provider is already set up to handle the function.
  • A regulatory, legal or contractual requirement for outsourcing exists. This can be in cases such as debt collection or accountacy where only professional or licenced individuals or entities can undertake the function.
Outsourcing Policy

Types of Outsourcing

There are 2 main types of outsourcing; horizontal and vertical process outsourcing. Process outsourcing refers business processes as opposed to people or assets. Outsourcing functions and processes is a common business practice which can enhance services, reputation and end results.

Horizontal process outsourcing is the term for generic outsourced services that function across all industries. They relate to every business in the same way, such as recruitment, IT, accountancy or human resources.

Vertical process outsourcing is industry specific. The service provider specialises in working with certain sectors or business types and has expertise in the services that they provide. Examples are suppliers in retail or healthcare.

How to create an Effective Outsourcing Policy

A policy details what the company’s objectives and processes are in relation to functions, activities and compliance. Having a policy template for outsourcing enables a business to record how they identify, verify, contract and monitor suppliers and service providers.

Due diligence and risk management also play a part in an effective policy for outsourcing. Ensuring that a company knows who they are working with and how that provider works and performs is essential. An outsourcing policy should demonstrate which functions or services are outsourced, the reasons why and how the service providers are chosen.

Outsourcing Policy Template

Know Your Compliance Limited provide policy templates so that businesses do not have to reinvent the wheel. Why spend time and resources learning how to draft a successful outsourcing policy when we already have a template ready to use!

If you are looking for a simple, easy to customise Outsourcing Policy Template, we’ve got you covered. Alternatively, if you also want to ensure that your service providers are appropriate and compliant, we also offer a Due Diligence, Risk Assessment & Outsourcing Policy Template Toolkit.

Both of our outsourcing template packs also come with a template for an Outsourced Functions Register. The register is an essential business document enabling outsourced functions to be recorded. Details on the register should include which services have been outsourced, to whom and why.