T 1.19 Failure of a service provider or supplier

Today, hardly any organisation is able to function without service providers such as suppliers or outsourcing providers. When organisational units depend on service providers, failures of outsourced services such as IT systems or infrastructural connections, for example, may impair the ability of the organisation to perform its tasks. The partial or full failure of an outsourcing service provider or a supplier may have a major effect on business continuity, and especially on critical business processes. A failure may arise for a variety of different reasons such as bankruptcy, unilateral termination of the contract by the service provider or supplier, operational problems such as forces of nature or a shortage of personnel, quality issues, or damaged reputation.

When IT systems and applications are operated externally and the IT systems of the service provider are inadequately structured or improperly isolated, the failure of just one system, regardless of whether or not it has been allocated to the customer, may still impair the business processes of the customer. This may always be a problem if individual IT components of a service provider are shared by different customers. When using host processing, for example, an error in the database of any of the customers of the outsourcing service provider may, under certain circumstances, force a halt of batch processing for several other customers if batch processing is poorly or incorrectly configured. Similar problems may arise when the connection between the outsourcing organisation and outsourcing service provider fails.

Examples:

• A company installed its server in the computer centre of an external service provider. After a fire in this computer centre, the financial department of the company was unable to function. This resulted in significant financial losses to the company.
• The just-in-time production of a company depended on timely deliveries of supplies and materials by external service providers. After one of the service provider's vans malfunctioned, the delivery of urgently needed parts was delayed drastically. This resulted in production delays.
• A bank contracted a cash-in-transit company for all cash transports. The cash-in-transit company then unexpectedly declared bankruptcy. The contract negotiations and route planning with the new transportation company took several days and led to serious problems and long delays in the transportation of cash to and from the branch offices of the bank. This seriously damaged the reputation of the bank as a result.