Outsource your supply chain management
May 09, 2014
Outsourcing is a growing trend internationally and has moved from being a mere support function to one that can aid a company’s bottom line. Today the emphasis is on total and effective supply-management processes that are linked to organisational goals and contribute significantly to a company’s success.
The rapidly changing supply scene as the result of the introduction of global supply markets, varying prices, lead times, availability and supporting technology provides a continuing challenge to entities that want to get the most out of their supply chain.
In addition, issues such as security needs,financial regulatory requirements and the environment have added much complexity to the task of ensuring that supply chains and suppliers provide a competitive advantage. As the degree of customer interactions increase in the service process, the complexity and challenges increase.
Outsourcing the supply chain administration process creates value and eases the skills shortage burden while also addressing any lack of knowledge. It can save money as well and free up capacity to deal with issues other than time consuming administration, which is often not core to a company’s business.
Notwithstanding the type of the outsourced contract you enter into, it is recommended that service level agreements are implemented to ensure reliability and performance. The latest trend in outsourcing is a move to performance based agreements, where the risk and rewards are shared between the service provider and the client and services are based on the common goals set out at the onset of the agreement.
However, companies need to understand that when they outsource, they also outsource control, which means they cannot take ownership and assign internal accountability when things go wrong. Having control over this function means companies can limit any reputation damage with the public and stakeholders if things do go wrong.
Keeping the supply chain administration inhouse makes sense in highly competitive markets with very mature internal supply chain practices, and companies do not want to lose the skills and competencies by outsourcing these activities.
Yet there are several advantages to getting a specialist to handle the administration, especially if the outsource partner is chosen wisely. This includes eliminating the difficult decision of potential restructuring or a reduction in resources as a result of outsourcing.
Outsourcing admin also takes away the headache of dealing with different jurisdictions as companies can tap into the expertise of the service provider in dealing with different country specific legislation and jurisdictions. This model also allows for risks to be outsourced and time to market being reduced by not having to waste time to learn, create or employ these competencies internally.
The benefits of outsourcing will differ from company to company, depending on the maturity of the supply chain, existing resource competency and structure, as well as the strategic direction of the business. Mature supply chain companies do it for cost and efficiency benefits, while companies that are risk-averse in their African expansion strategy may not want to risk the failure by doing it themselves.
However, companies must be wary of outsourcing agreements that do not add measurable value to the performance of the supply chain and are not performance-based. Companies should also avoid service providers that do not want to take any risk in the deal.
Companies outsourcing their supply chain administration should also carefully look at their exit strategy and the ability to continue their operations at the termination of the outsource agreement.