More companies are outsourcing their supply chain in whole or in part to focus in-house resources on core competencies. Outsourcing your supply chain offers numerous benefits, such as improving your ability to meet customer demands and reducing operational costs.
Before getting into the details of how you can benefit from outsourcing your supply chain, let’s discuss a few supply chain basics.
What is a supply chain?
A supply chain refers to the entire ecosystem/network comprising of the personnel, processes, information technology and resources involved in the production and distribution of a product. Entities involved in a supply chain include:
- Distribution centers
- Transportation centers
A supply chain begins when raw materials are sourced and transported to the manufacturer and ends when the final product is delivered to end users. This latter part is often called the distribution channel — it’s the segment of the supply chain that involves the transportation of finished products from manufacturers to consumers.
Why is supply chain optimization important?
Since supply chains are so critical to the success and continuity of all businesses, optimizing them will result in faster production cycles and reduced costs. Optimizing the supply chain requires effective supply chain management (SCM).
The supply chain contains several elements and functions including product development, operations, marketing, finance, distribution networks and customer service. Managing these different elements, entities and steps in a supply chain requires skill, expertise and access to best-in-class resources.
7 reasons to consider outsourcing your supply chain
Effective SCM can reduce costs, increase profitability and improve customer satisfaction. However, mismanaging a single link can negatively affect the rest of the supply chain, costing businesses money and customer satisfaction. Given the risks of ineffective supply chain management, many companies choose to outsource various steps in the supply chain to third-party providers with years of experience in this vertical. Let’s explore some of the benefits of outsourcing your supply chain.
1. Strategic positioning
Companies can outsource their supply chain to facilitate efficient service and business growth. Getting entangled with the strategic and tactical details involved in SCM can sidetrack businesses from their core competencies. Outsourcing supply chain processes enables companies to focus their time, energy and resources on what they do best — developing better products and services for their customer base.
2. Increased value
External supply chain partners bring capabilities, solutions, and expertise that will take companies several years and significant capital outlay to develop in-house. The expertise they bring to the table can be extremely valuable especially if they specialize in your region, industry and vertical. They also leverage operational excellence tools that help to boost efficiency and productivity in your business operations.
3. Reduced operational cost
Supply chain activities come with a lot of infrastructure, overhead and staffing costs. Such operating and capital expenses can quickly add up and significantly impact a company’s profitability…if not handled properly. It’s often more cost-effective to outsource supply chain activities to a reliable third-party than to handle it in-house. The savings may be greater if the supply chain is outsourced to an overseas partner.
4. Improved ability to meet customer demand
Customer satisfaction is key to any sustainable, long-term business enterprise and this can only be achieved when supply chains are operating optimally. Outsourcing such functions to an expert partner helps to reduce the chance of an inefficient supply chain, which can seriously damage customer relationships and profitability. Third-party suppliers are better equipped with the human resources, technology and effective processes to ensure all supply chain processes flow smoothly and efficiently.
Since third-party suppliers are better equipped with the tools and technologies for managing supply chains, they are in a better position to adapt to changing market conditions and consumer preferences. Their resources and expertise are particularly invaluable when companies need to scale production in line with fluctuating customer demands.
6. Increased working resources
When you partner with third-party supply chain companies, you gain access to their working resources and industry expertise. Leveraged correctly, these resources can help you gain an edge over larger players in your industry.
7. Risk mitigation
Working with 3rd party supply chain partners can help you achieve better visibility, security, and control into areas like compliance, quality, lead times and inventory levels. This enhanced visibility allows you to identify areas of risk and take proactive steps to mitigate the impact. You can work with your supply chain partner to reduce lead times, optimize safety stock, prepare for audits, secure back-up suppliers and optimize safety stock.
Effective SCM is vital to business success. Outsourcing this aspect of your operations can help you achieve operational maturity, healthy inventory levels, and better meet customer demands. Not only will you benefit from the increased customer satisfaction that supply chain companies deliver, but you will also reduce operational costs and improve your company’s bottom line.