Weighing the Benefits & Risks of an Outsourced Supply Chain

Outsourcing labor, such as supply chain management, can seem intimidating for many companies. The additional fear of “sending jobs away” can also make company owners reluctant to outsource any of their processes to other companies.

Despite this reluctance, companies can often find outsourcing beneficial, as the process can allow companies to work more effectively and expand resources. Using an outside source to manage supply chains can prove beneficial to many different kinds of companies.

What is outsourcing?

For supply chain management (SCM), outsourcing simply means having another company take care of getting a company's product from development to the customers. There is a stereotype that “outsourcing” always means sending positions overseas.

However, this is not true in many cases. Unless a company is looking at international markets, it is not necessary to move managing overseas. Often, a local company that specializes in logistics and supply management will be able to handle distribution needs. 

Benefits of outsourcing

Many companies can have trouble with managing their supply chains on their own. Between the producers, the manufacturers, and the customers, companies conduct their business in multiple stages. These tasks are on top of whatever the business already does. Some companies can do this, but many find the idea of doing work that is not their intended business daunting. This can be especially true for smaller companies. By using an outside company to handle the supply chain, companies can focus more of their energy on their original goals. In spending less time on logistics, a company can then grow and expand the customer base.

On a related note, special supply chain management firms can handle a supply chain more effectively than many businesses can on their own. A firm specializing in SCM will be able to focus on aspects of shipping and distribution many companies do not think about, such as cost-efficient packaging and shipping maneuvers. Additionally, SCM-focused firms already have people who are trained in managing supply chains, which saves a company from having to use the time and energy to train people in-house to handle the process.  By outsourcing, a company can ensure products are delivered in a timely manner, without worrying about their in-house employees leaving and taking the knowledge they've gained with them.

By using an outside firm, companies also have an opportunity for flexibility. When handling SCM in-house, companies may need to hire additional workers. This works fine if the company is busy and profitable, but a loss of income often means a loss of personnel.  Losing personnel means other people have to learn SCM on top of the other tasks they may be doing already. Using an outside firm to handle SCM concerns allows a company the flexibility to adjust the SCM to needs as they arise.                     

Drawbacks of outsourcing

As with any company decision, there can be drawbacks to using an outside firm to handle SCM needs. The main sticking point for many companies is having to pay another company for work, which can be another expense, especially if there are unanticipated fees. Additionally, some companies are wary of  giving up direct control by trusting SCM to another group. Trusting another company can also put companies off of outsourcing — if the SCM firm uses cheap materials or does not deliver what was promised, the original company can get a negative reputation as a result. Finally, there can be concerns about getting all of the needed information when it is needed.

Addressing the drawbacks

Addressing the drawbacks of outsourcing SCM can be as simple as taking more time to plot out goals and intentions for both companies. There are multiple SCM-focused companies out there, so it is important for a company to research what they all can provide. A company considering a SCM service needs to be clear in terms of what is expected and what they want from the shipping provider. Likewise, SCM providers need to be upfront about shipping strategies, their capabilities, and what volume of work they can handle.

In this modern age of shipping and SCM, all companies can benefit from embracing technological solutions. Companies can use electronic check-ins, mobile devices, and GPS to ensure items and goods are being delivered as required. This can be especially true in cases of unexpected events, such as disasters and inclement weather.

Both SCM providers and companies need to consider the entire picture of a working agreement before agreeing to enter into work together. Commercial concerns, such as cost and supplies, need to be considered by all parties to ensure they are meeting every need. Costs are important to keep in mind to avoid losing money on the whole process.

However, the human and more “intangible” elements cannot be ignored. A company must be able to provide service as well as help a company's bottom line. Additionally, considering how SCM strategies impact the environment or local economies are important factors in choosing an SCM provider.

Should you be outsourcing your supply chain management?

The process of choosing an approach to effective supply chain management can seem like a complicated and daunting task for many companies. Using firms that focus on providing SCM services is one way that companies can address their shipping and distribution needs. For many companies, using an outside source of help provides extra resources and time to help customers and improve business goals.

Have you ever used an outside company for your SCM needs? What factors did you keep in mind while making that choice? Let us know in the comments section below.

1 comment on “Weighing the Benefits & Risks of an Outsourced Supply Chain

  1. KenKlaver
    February 5, 2016

    To #outsource #transportation, or not? Gartner identifies the benefits and cautions

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