Outsourcing in Supply Chain Management: Top 8 Reasons to Consider it in 2023

Supply Chain Management
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The global supply chain processes and practice has been evolving rapidly in recent years. In the pandemic and post-pandemic economy enterprises have gone through various changes and supply chain management is not shy of that. Over time, outsourcing supply chain processes have become more of a convenient option due to their flexibility, access to resources, and satisfaction at the consumer end.

According to the Harvard Business Review, the ongoing war in Ukraine and other global disputes will constrict the global supply chain in 2023. (source). In this current situation how wise it is to outsource your supply chain management to supply chain companies? Let’s have a thorough look at it within this article.

What is Outsourced Supply Chain Management?

Outsourced supply chain management involves the hiring of professional logistics companies to manage, improve and optimize the supply chain activities of an enterprise. Rather than doing on own outsourced supply chain, management can bring much-needed improvements fast.

Outsourcing gives results in the system by providing businesses with less storage and fulfillment of time-consuming fulfillment tasks while saving costs and increasing supply chain speed.
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What is the Role of Outsourcing in Supply Chain Management?

Outsourcing in Supply Chain Management

A Deloitte study shows that 79% of companies that have a highly efficient supply chain achieve revenue growth that is significantly above average (source).

In addition, businesses utilizing these optimal supply chains enjoy 3-x faster cash-to-cash cycles and 15% lower supply chain cost.

Clearly, these companies benefit from excellent SCM management. Companies unable to control or maintain the supply chain will often find themselves overwhelmed with supply issues.

So the role of a well-oiled machine of supply chain management is crucial which increases the demand for supply chain management professionals more with the moving global economy. But not always it’s possible for organizations to hire top talents rather it becomes feasible to hire supply chain companies for superior distribution networks.

What are the Processes you Can Outsource?

Depending on the capabilities, need & strategies enterprises outsource various types of processes in supply chain management. Some of those are,

1. Manufacturing Process Outsourcing:

Manufacturing process outsourcing is a crucial part of supply chain strategy. Outsourcing the manufacturing process gives a proper edge in producing products in time with specialized equipment, skills & resources.

2. Procurement Services Outsourcing:

The sourcing of raw materials, components, or finished goods give can be outsourced to Procurement Service Providers to gain efficiency in supply chain management so the focus on developing core business remains the same.

3. Inventory Management:

For real-time visibility, demand forecasting and optimization algorithm outsourcing inventory management are highly in demand. Inventory service providers (ISP) can give you an advantage with the management of inventory levels, stock out & reorder points.

4. Quality Control:

When you are in a business of mass production, quality control is a daunting task. While lack of quality might become damaging for the brand and also a time lengthy task, outsourcing quality control operations to third-party suppliers is an option to scale production.

5. Data & Analytics:

Data & Analytics are the future of running a smooth operation and risk mitigation. While developing in-house capabilities can be costly, outsourcing the operation can be beneficial for performing core functions and gaining access to scaling business operations.

6. Transportation Management Services & Logistics Management:

Transportation Management – domestic or international – focuses on a wide range of shipments spanning multiple carriers or transportation routes with sophisticated tools and techniques. Depending on the type and complexity of these services from the logistics to logistics to the planning of a single shipment.

Sometimes shipping companies can outsource their transport operations as part of a 3PL team and use a third-party logistics firm to manage all their day-to-day shipping operations which can be crucial for business success.

7. Value-Added Warehousing Services:

Value add-in services have also been growing thanks mainly to e-commerce. Depending upon customer requirements, it includes custom-made packaging, inserts, packaging kits, returns service, maintenance, warranty management, customized services, and an optimized supply chain. Leasing warehouse space can also be a good option for outsourced supply chain management.

Industry Specific Outsourcing Supply Chain Management

Different businesses under different industries need customized supply chain outsourcing. Let’s have a look at some of the industry-specific examples.

  • Retail Industry:

Retail industries rely heavily on logistic providers that specialize in warehouses, transportation & distribution. Example: Amazon relies heavily on 3PLs for their shipping, handling, and transportation of goods.

  • Healthcare Industry:

Healthcare industries outsource their supply chain management to 3pls to maintain their medical supplies, pharmaceuticals & other medical equipment. Example: Medtronic, a medical technology company outsources its supply chain management to a supply chain partner named DHL.

  • Automotive Industry:

Automotive industry frequently outsources its supply chain management to third-party service providers to manage raw materials, finished goods, and other necessities. Example: Penske Logistics manages the supply chain & logistics operations for FORD.

  • Electronics Industry:

Electronics industry often outsources its supply chain management to providers that have expertise in the production of electronic equipment & devices. Example: Foxconn is the third-party supply chain manager for apple devices.

In different industries, there are many different service providers that use its robust supply chain network to support global leaders in supply chain outsourcing. It helps them with logistics management while the producer can focus on its core competencies.
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Outsourcing in Supply Chain Management: Verticals vs. Horizontals

To assess the importance of outsourced supply chain operations and their impact on business continuity, divide the supply chain activity into vertical and horizontal lines in order to achieve the best results in the supply chain. Think about verticals like sourcing, manufacturing, or logistic management.

Similarly, think of horizontal activities as activities strategies enabling vertical activities including coordination of day-to-day operations design and tech strategy. Remember that verticals may have different characteristics compared to other verticals. You could have no manufacturing operation. It could be an ad hoc packaging and bottling vertical. Your horizontals could be different from those of others.

Why Outsource Supply Chain Management

Top 8 Reasons Why you should Consider Supply Chain Management Outsourcing

1. Work Flexibility:

The separate supply chain management team gives internal teams the flexibility to work in a different direction while also improving core business skills.

2. Adds Time to Focus on Scaling Your Business:

In an outsourced supply chain, you have more time for other vital business processes such as sales promotion, product design, building customer relationships, and support. As your business develops, 3PLs can help you expand your inventory management plan by providing information to improve inventory.

3. Strategic Management:

The expertise of the service providers determines the decision on the outsourcing of supply chains most crucially. Supply chain management requires strategic planning and is therefore unattainable. If you seek industry expert support and top-level services, half of your tasks will go smoothly. Outsourcers can help your business grow.

4. Balanced Supply and Demand:

Supply chain management aims to maintain equilibrium with demand. Outsourcer services offer a better view of demand and supply allowing businesses to learn a deeper understanding of the Back Sets and establish a firm foothold.

5. Improved Ability to Meet Customer Demand:

Customer satisfaction is essential for sustainable and long-term business operations, which can only take place when supply chain operations work well together.

Outsourcing the functions in question by experts can help reduce the possibility of inefficient supply chains that can seriously affect the customers’ loyalty, revenue, or profits in the long term. In order to maintain efficient supply chain processes, third parties have to invest more resources and technology.

6. Reduce Overall Costs:

Supply chain managers require extensive processes and labor for running lean supply chains smoothly. Often logistics costs are high. By outsourcing your supply chains, it’s easier and less stressful to manage logistics and benefit from a low fulfillment logistics cost.

If you aren’t strategic, you will have an expensive supply chain. Renting a warehouse has become more cost-effective and warehouse leaseholders are expected to expect an increase of 7% in rates starting in 2020.

7. Increases Accuracy in order Processing:

3PL Software integrates with your online store and other sales networks to make it easier for you to process an order. ShipBob sends orders to the fulfillment center for pick up, packing, and shipping. Customers are able to monitor the order status and the inventory level from any single location.

8. Boosts Customer Satisfaction:

Although customer access cannot be accessed directly through their orders, if their supply chain is efficient your clients may benefit as well. By outsourced shopper service, you are able to let the experts handle logistics, helping you cut down on costs and provide more customer satisfaction by delivering faster deliveries and more accurate orders.

Benefits and Risks of Outsourcing Supply Chain Management 

It’s a good thing to outsource supply chain management because it’s not without risks. Find 3PL partners that are ready to meet your needs. The bad can easily overcome the good, and by choosing the right 3-PL, the benefit will increase significantly as time passes. Providing supply chain management to the outsourcing industry is the most cost-efficient way to increase efficiency.

E-commerce is the buzzword for many years now. But to build successful e-commerce you will have to put up with customer demands as well. Supply chain disruptions can be a killer for your brand reputation. So to build better customer relationships you have to rely on outsourced supply chain management. Let’s have a look at the benefits & potential risks.

Benefits and Risks of Outsourcing Supply Chain Management

BENEFITS:

  • Reduced overhead costs.
  • Increased scalability & handle an increased number of customers.
  • Streamlined process cut down time & use of resources.
  • Access to expertise in inventory, logistics & distribution management.
  • Gives you more time to focus on core competencies such as product development & core business growth.

RISKS:

  • Loss of control over some functions & quality issues.
  • Dependency on third-party service providers can create communication issues.
  • Sometimes there are security issues in terms of data & numbers.
  • Legal & regulatory compliance risks associated with the third-party service provider.
  • Risks over managing your reputation over outsourcing logistics and support services quality.

What Industry Verticals Use 3PL Services the Most?

Fortune 500 companies spent $40 billion on outsourcing logistics services for 3PL services. The retailer industry accounted for most of the largest percentage share of 3PL revenue for 2018. Consumer Goods spent the least, $7.1B. The average cost was $7.3B. But consumer goods – led through COVID-19 – are gaining 3PL usage. In 2020 the 3PL revenue could grow to about 40% and above. Retailers are most likely to buy 3PL services, with consumer goods spending the lowest.
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Choosing the Right 3PL Company

Outsourcing supply chain management was an important step. It is important to take some time to choose the best 3PL partner. While you are choosing the 3pl company for your business to manage your needs in distribution & management, make sure that you inquire about the Tech stack and price models, and how far their fulfillment center is from where it has already expanded. Also research the company, its reputation & other useful data and take advice from the experts on choosing the right 3PL company.

When Should You Outsource?

Managing your operation can often be difficult. The correct combination varies wildly depending on the supply chain. The right questions are essential for a good working relationship. But when should you outsource? Let’s give you an idea of it:

Outsourcing Considerations in Supply Chain

How does globalization affect outsourcing?

Globalization has enabled international business & shipping possible with shopping from anywhere around the world. Outsourcing the supply chain helps a company grow its business globally.

By outsourcing supply management and fulfillment operations into specialized fulfillment services, you can easily compete for the top brands in international markets, through the fulfillment and delivery of orders close by customers and expanding international sales.

Connect With Our Fulfillment Expert Today

If you are looking forward to expanding your business or solving any particular problems that might need expert handling, you can talk to our fulfillment expert today. Our top-of-the-line supply chain and distribution management are always ready to serve your needs. Contact us today to get a free consultation!

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Frequently Asked Questions (FAQ)

  1. What is outsourcing in supply chain management?

    Answer: Outsourcing in supply chain management refers to the practice of delegating supply chain functions and operations to third-party service providers who have expertise in relevant industries or functions. These functions may include transportation, warehousing, inventory management, and distribution.

  2. What are the benefits of outsourcing supply chain management?

    Answer: The benefits of outsourcing supply chain management include the following things.

    • Reduced costs
    • Improved efficiency and scalability,
    • Access to specialized expertise, and
    • The ability to focus on core business functions.
  3. What are the risks associated with outsourcing supply chain management?

    Answer: The risks of outsourcing supply chain management include:

    • loss of control,
    • dependence on third-party providers,
    • security risks,
    • legal and regulatory compliance risks, and
    • reputational risks.
  4. What types of businesses can benefit from outsourcing supply chain management?

    Answer: Businesses of all sizes and across various industries, including retail, healthcare, automotive, electronics, and consumer goods, can benefit from outsourcing supply chain management. As businesses are going global with the essence of technology, the possibilities are higher than anytime before.

  5. How do you choose the right outsourcing provider for your supply chain management needs?

    Answer: When choosing an outsourcing provider for your supply chain management consider the following factors.

    1. the provider’s experience and expertise,
    2. their track record,
    3. their pricing and service level agreements, and
    4. their ability to integrate with your existing systems and processes.

    Besides, it’s also important to evaluate their cultural fit and communication style to ensure a successful partnership.

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