The Benefits & Risks of Outsourcing Within Your Supply Chain
The key to a good business is a strong supply chain.
Unfortunately, global supply chains have taken some severe hits over the last two years. Back in December 2019, companies were left scrambling as many of their suppliers were based in China, the epicentre of the coronavirus outbreak. Panic buying and reduced workforces have added to the problem. And more recently, HGV driver shortages have meant delayed shipments across almost all sectors.
Outsourcing is becoming a necessity for many manufacturers struggling to respond to these challenges. However, it doesn’t come without risks. Not least the hedging of one’s company reputation and customer satisfaction on others. A reliable supply chain therefore is essential.
According to a survey by Gartner, only 21 percent of business respondents stated they had a highly resilient network. As the need to outsource increases, companies need to know that their supply chain is solid.
The benefits of outsourcing
Third party logistics companies offer smooth systems for inventory storage, order fulfilment, warehouse receiving, shipping, returns and more, with tried and tested processes and strong business relationships to get things done more efficiently and strategically. Costs such as warehousing and shipping may be lower as a result.
By handing over some of the work to a trusted third party, you’ll have more time to focus on other areas of your business. When the logistics is being taken care of through outsourcing, you can divert your attention towards growing your business.
You can also benefit from faster shipping times, with companies that offer affordable, faster shipping from multiple locations at a lower cost, which you can then pass on to your customers.
Outsourcing can also increase the flexibility of your operations and provide better accuracy when it comes to processing orders.
Ultimately, by outsourcing within your supply chain, provided all entities are reliable and efficient, you can provide a better experience for your customers, improving overall customer satisfaction with your business.
The risks of outsourcing
Managing supply chain risks is essential when outsourcing. Risks can be divided into two categories: internal and external risks.
External risks are harder to predict as they come from outside of your organisation and typically require more effort and resources to overcome. Examples include:
Miscalculating demand for a particular product, leading to either a stock shortage or overstock. This could be due to an unpredictable level of demand for certain items (the pandemic has been a clear example of this) or a lack of insight into year over year consumer trends.
Supply chain disruptions such as raw materials failing to arrive on time or at all, causing the entire operation to falter.
Environmental risks that may affect the smooth flow of the supply chain. These could include natural disasters, socio-economic, political or governmental factors affecting the countries where your suppliers are based.
And of course, when working with other companies, you can expect there to be changes within those businesses that could pose their own risks. For example, if the company is sold or merges with another. Internal risk factors are more within your control to address through comprehensive supply chain risk assessment policies. Examples include:
Manufacturing risks disrupting workflow or disruptions to essential business processes. Poor planning and assessment leading to inadequate production and overall management.
Cyber security is another risk factor. A recent study found evidence of low recognition of supplier cyber security risk, limited supply chain visibility and insufficient tools for the evaluation of risk among organisations’ supply chains.
It’s vital to gain a complete picture of any supply chain risk factors, in order to plan effectively and avoid them where possible. Many businesses are turning to technology, with prescriptive and predictive analytics providing business insights to help guard against supply chain risks. A contingency plan is a must-have for all business supply chains. A lot of these risks can be effectively mitigated, using strategies such as ensuring better supply chain visibility, implementing logistics contingency planning, risk awareness training and ongoing risk monitoring. Whether you choose to outsource most of your supply chain management or just some aspects, you can be successful, provided you plan ahead. Proper risk management is essential.
For advice and support on risk management when it comes to supply chains and outsourcing, speak to an advisor from Full Time Cover on 0207 923 4191. Our experienced, friendly advisors can help answer your questions and put your mind at ease.