When a company, for the soundest of business reasons, is exploring placing its crown jewels, its intellectual assets, in the hands of a third party, proper internal controls are vital.

A company’s internal controls may help to ensure proper:

• Vetting and selection of the prospective manufacturer during the due diligence process.
• Negotiation of the outsourced manufacturing relationship.
• Management of the outsourced manufacturing transaction and relationship with the manufacturer.

One very important internal control is to ensure that all relevant responsibilities are funneled through a responsible team or party. This should reduce the possibility of “surprise” agreements or soft commitments that could undermine or derail the value of the prospective outsourcing relationship. One simple way to accomplish this goal is to delegate signing authority and supervisory responsibility to one member or a core team of company management.

This centralized oversight should facilitate:

• Improved risk-assessments.
• Uniform application of the company’s manufacturing protocols.
• Improved Knowledge and data management regarding current and historical transactions.
• Processes to improve and refine protocols for future transactions.

In the next section we will discuss various controls that would be prudent to implement to minimize these risks.