Santa Ponders the Risks and Rewards of Outsourcing Toy Making

It’s crunch time at the North Pole, and Santa is worried. Despite his elves’ best efforts, he’s not sure they are going to be able to produce all the toys he needs by Christmas Eve. He’s wondering if it might be a good idea to outsource toy making.

But before Santa breaks with hundreds of years of elf toy making tradition, he needs to consider third-party risk. Here are some questions he and Mrs. Claus should ask:

How does outsourcing toy making fit with overall North Pole strategy?

What are the mission, vision, and core values of the North Pole, and how does outsourcing mesh with those objectives? Does this action align with goals, whether it’s saving money, improving toy quality, increasing production, enhancing business continuity, boosting elf morale, or something else?

What are the potential risks of outsourcing?

• Empty stockings. The vendor doesn’t deliver the toys in time for Christmas.
• Increased population at the Island of Misfit Toys. Toys fall short of elf-quality and are rejected along with the Charlie-in-the-Box, the train with square wheels on its caboose, and the water pistol that squirts jelly.
• Decreased Christmas spirit. Children all over the world imagine magical elves tinkering away at the North Pole. A Chinese factory mass-producing Legos doesn’t inspire the same awe. Robbed of their raison d'être, the elves may lose their Christmas cheer.
• Elves gone wild. With much less work to do, who knows what mischief the elves will get into?

What are the potential rewards of outsourcing?

• Every child’s Christmas toy wish comes true. With increased capacity, every child will get the toy he or she most hoped for.
• Merrier elves. Elves will be able to enjoy the holiday season instead of working triple overtime.
• Improved business continuity. If the North Pole has a catastrophe, toys will still be made.

Is there another approach that makes better business sense?

Perhaps it would be wiser to limit each child to one toy, limit the variety of toys available from Santa to simplify operations, or stop distributing toys altogether? Maybe the North Pole could hire more elves or train the reindeer in toy making. Are there efficiencies to be gained with improved workflows, better tools, or more elf training?

Is this a critical vendor?

Absolutely. Millions of children all over the world are counting on Santa to deliver their presents on Christmas Eve. Santa can’t fail. That means the vendor can’t fail either.

Can the North Pole provide appropriate oversight of toy making vendors?

Yes. With the elf workforce no longer producing toys, it will free up numerous toy experts, including many with management experience, to conduct due diligence and monitor vendors. Additionally, the North Pole has strong infrastructure for monitoring. Santa already knows who’s sleeping, who’s awake, and who’s been bad or good. This can be adopted to vendor management so vendors better be good for goodness sake.

Is the vendor up to the task?

How do the vendor’s financials, experience, legal knowledge, reputation, operations, and controls look? Does it rely on subcontractors? Does it have sufficient Christmas spirit, or is it run by a Grinch?

Does the contract look out for the North Pole’s interests?

Costs should be spelled out along with performance measures, benchmarks, and reporting, which include the consequences for failing to deliver the toys on time and in the condition promised. The contract should also require the vendor to keep the magic behind Santa’s workshop a secret. Although it makes him very sad, Santa is prepared to give naughty boys and girls a lump of coal. That includes vendors.

Is it a good idea to start outsourcing toy making at the North Pole? Only Santa, Mrs. Claus, and their key elf advisors can make that decision after carefully considering all the factors, risks, and controls. With all the good boys and girls in the world counting on him, there’s no room for error.

Related: Creating Reliable Risk Assessments