Outsourcing – The New Link in Supply Chain Management
Life as we know it depends on it. Getting our food and water, clothes and medicine from supplier to consumer rely on it. Successful supply chain management is vital for the success of most businesses because it ensures customers get what they want when they want it.
But supply chain management is not just about the movement of resources from point A to Point B. There’s a lot more to it.
Supply chain management, when done right, boosts customer service and overall satisfaction by making sure that the right product is delivered to the right person – on time and in good working order. Effective supply chain management is also great for customer service and aftersales support as it helps to build customer loyalty.
Outsourcing in Supply Chain Management
You know what they say – if you want something done right, you need to do it yourself. This is usually true, but because supply chain management is all about strategy and efficiency, it often makes sense for businesses to outsource their supply chain tasks to a skilled third party.
Some of the reasons to consider outsourcing to a 3rd party logistics (3PL) provider are:
It’s cost-effective: When business owners think about outsourcing a business task, they often cringe at the thought of how much it will cost. But the truth is that businesses can save a lot of money by outsourcing their supply chain management since these companies often already have advanced infrastructure and well-developed networks in place
The business will have a competitive advantage: On its own, a business’s supply chain tools and resources may be limited, but the third-party partner will offer additional solutions, expertise, and resources that wouldn’t otherwise be available. They could also have greater negotiating power than the average business owner which means that they will be able to reduce operation costs.
The customer’s demands will be met more effectively: Most importantly, the responsibility of meeting customer demand is shifted onto the outsourced company and can be manged with clear KPI’s. This means that there is more time to focus on business growth and overall profit.
While there are plenty of benefits to outsourcing supply chain management, hiring a less competent partner may do more harm than good. Here are some potential risks to be aware of:
There may be hidden costs involved: While outsourcing supply chain management can be cost-effective, there may be unexpected expenses such as an increase in shipping costs or a tax increase along the way. Be sure to consider both upfront and hidden costs when doing a feasibility assessment of outsourcing to a 3PL
Product quality may suffer: This tends to happen if the outsourced organisation lacks industry experience, uses lower quality products, doesn’t assess potential risks, or just cuts corners in general. This could also lead to a decrease in brand equity and productivity in the long run. Be sure to research your prospective 3PLs reputation before entrusting them with your reputation and make sure there are clear KPI’s and quality measures in place
There might be some security risks involved: You will be giving the 3PL access to a lot of sensitive information and you will need to ensure that your company’s interests are protected with iron clad contractual non-disclosure clauses in your contract. Furthermore, businesses with access to customer data need to be careful when involving a third-party organisation. The customer’s privacy must always be protected.
Types of 3PL partners
Before choosing an outsourced partner, consider your specific business needs. This will determine the type of 3PL provider you’ll need. There are 4 levels of 3PL integration to choose from:
- The Standard provider: The is the most basic 3PL provider. This company offers services such as warehouse management and distribution.
- The service developer: The service developer offers more unique services such as product tracking and custom managing.
- The customer adaptor: These providers are specifically requested by the client and take full control of logistics duties.
- The customer developer: These 3PL providers integrate themselves with the client and take complete control of all logistics duties by performing detailed tasks. This is the highest level a 3PL provider can reach in terms of processes and business activities.
Lastly, once you have determined what type you 3PL partner you’ll need, you’ll need to narrow it down even further. Ask these 5 questions before making a final decision:
- What are my unique business needs?
- How much experience do they have in this specific industry?
- Do they prioritise good customer service and communication?
- Do they have a strong safety record?
- Do they have a good reputation?
Interested in the workings of supply chain management? IMM now offers a BCom in International Supply Chain Management. Start your career, or if you’re already working, boost your career with an internationally recognised qualification from the IMM Graduate School.
Applications for 2020 are now open! https://imm.ac.za/