With growing global business competition and complexity in supply chains, companies have recognized that it is not possible to maintain competitiveness in a global market on their own. Therefore, involvement of third-party supply chain management (SCM) providers is an important strategic tool to allow companies to focus on their core competencies and access global resources. But how can outsourced SCM providers take this to the next level and create more value?
SCM is an integral crucial process that involves planning, developing, implementing, and monitoring flow of goods, services, information, and finances across the entire supply chain. This is a complex and dynamic field that ranges from raw material suppliers to end customers, aiming to achieve effectiveness leading to a competitive advantage in the marketplace.
Why does outsourced SCM grow?
The primary goal of SCM is to optimize the effectiveness of the supply chain while minimizing costs. Given the day to day challenges to achieve this, it’s no wonder that businesses turn to third-party SCM specialists as a viable solution. With continued globalization and unpredictable situations like pandemics, outsourcing is forecasted for continued growth. According to recent statistics, the supply chain segment has increased at the fastest rate by more than 8%. But how to take outsourced SCM to the next level?
SCM providers are rapidly scaling global logistics capabilities, enabling worldwide product movement from manufacturing hubs, across borders, through customs, and arriving in destination countries. Companies also need low-cost warehousing to store products in bulk so they can quickly replenish them to fulfillment centers and physical stores that service customer orders and shopping. Furthermore, companies seek fulfilment, last mile delivery and returns handling services.
On top of this, SCM providers have invested heavily in visibility, automation and inventory- and supplier management capabilities to reduce inventory carrying and transportation costs. At the same time, they have been able to hold or increase service levels for deliveries and return orders.
Benefits of outsourced SCM
Supply chain outsourcing offers several potential benefits to businesses, depending on the specific needs and circumstances. Here are some of the key advantages of supply chain outsourcing:
- Cost Savings: Supply chain outsourcing can lead to significant cost reductions. Specialized third-party providers often have economies of scale, advanced technologies, and cost-effective processes that can reduce both operational and labor costs.
- Focus on Core Competencies: Outsourcing non-core supply chain activities allows companies to concentrate on their core competencies and strategic priorities.
- Access to Expertise in SCM: External supply chain partners often have specialized expertise and knowledge in their respective areas, such as logistics, procurement, or manufacturing.
- Scalability: Outsourcing provides scalability to adapt to fluctuations in demand. Companies can easily scale up or down their outsourced services as needed, avoiding the need for significant investments in infrastructure and labor during peak periods.
- Risk Mitigation: Sharing supply chain responsibilities with third-party partners can help mitigate risks. For example, logistics providers can offer contingency plans for disruptions in transportation or warehousing.
- Efficiency and Productivity: Outsourcing can lead to improved supply chain efficiency and productivity through streamlined processes, better resource allocation, and the use of advanced technologies.
- Continuous Improvement: Many outsourcing agreements include performance metrics and service-level agreements (SLAs), which encourage continuous improvement and accountability.
Reluctance to outsourcing
Notwithstanding the benefits of SCM outsourcing, it can also provide a companies with challenges. Some of these include the following:
- Loss of Control: Outsourcing may result in reduced control over certain supply chain processes, which can be a concern for some organizations.
- Quality and Reliability: You need effective supplier management in place in order to ensure the quality and reliability of outsourced services or products.
- Communication and Coordination: Effective communication and coordination with external partners are essential to avoid disruptions and maintain alignment with business goals.
- Data Security: Protecting sensitive supply chain data and information is critical, especially when outsourcing IT or data-related functions. Partnering with a service provider without careful consideration can prove counterproductive.
- Dependency on Suppliers: Finally, over-reliance on suppliers or service providers can pose risks if they experience issues or disruptions with the delivery.
Companies with larger or more complex supply chains therefore still opt for being “in control”. They want to individually choose which services to use and manage all product movement decisions. However this behaviour is starting to fade while SCM providers improve their overall capabilities and introduce new service features based on advanced technology and new business models.
Value of fully-managed supply chain
Amazon is an example of a SCM provider at the forefront of offering new capabilities and services, taking outsourced SCM to the next level. Amazon’s Fully-Managed Supply Chain makes the supply chain more turnkey than ever before. Companies can continue to choose which supply chain services they want to use and manage decisions on product movement on their own, or they can have Amazon automate the movement of products through these supply chain services with the fully-managed option.
One simply provides product details and pickup locations and Amazon oversees the rest, including carrier pickup, inventory consolidation, strategic replenishment and placement into fulfillment centers nearest to customers, and continuous analytically-driven optimization based on demand, inventory levels, and costs.
Companies can leverage Amazon’s advanced logistics, warehousing, distribution, fulfillment, and transportation to move products from factories to customers faster than ever before, reducing shipping times and saving sellers time, effort, and money. But with the fully-managed option, Amazon adds forecasting and optimization capabilities, and manages the flows between these supply chain services.
The fully-managed option leverages machine learning and predictive analytics to help automate the process of identifying or predicting where to move an individual unit or when. While humans are still involved in operations like shipping, automation is used to ensure operations are more safe and reliable.
When companies use the fully managed option, they also qualify for Amazon Warehousing and Distribution (AWD) integrated rates, including a 25% discount on AWD storage fees and a 15% reduction in AWD transportation and processing costs. Benefits from improved utilisation of capacities and increased planning options are in this way directly shared.
