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[The Risks and Benefits] of Outsourcing Supply Chain Management

October 24, 2018

Many times, outsourcing is the way to go for businesses that find supply chain management a pain in their operation. It's a very demanding task but equally crucial if the organization wants to meet customer demand and increase sales. As much as hiring supply chain management recruiters are convenient at first glance, it doesn't work for every business. One reason is it comes with a fair share of risks and benefits that if not balanced, will take its toll on the company's revenue.

Benefits

Companies won't consider outsourcing their supply chain and logistics jobs if not for the benefits it brings. The additional hands and minds help a business prosper given that the third party has enough experience and the right skill set.

Lower cost

Businesses that lack the expertise in supply chain management can save more if they avail the service of an experienced third party. The time and resources saved in the process will reflect on the overall expenses of the business. It is the result of affordable materials, better logistics, or utilized manpower. Given that the third party is skilled enough, the outsourced cost should be lower than how much the company spends when doing it on their own.

More time for business building

With the supply and distribution of the product secured in the hands of a third party, companies can now focus on improving their business strategies. There is more time for enhancing marketing efforts, implementing new ideas, and finding ways to improve customer relations. All of which are compromised when companies spend endless hours on dealing with SCM.

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Satisfied customer demand

Outsourcing SCM means that a certain group of people is dedicated to bringing your products straight to the end users/consumers. The third party has one job which is to ensure that your products are in good standing in the market. If done right, it is a win-win situation for both the company and the service provider.

Risks

There are risks in every business. Even the best supply chain executive search firms would struggle with some of the perils of outsourcing.

Hidden fees

Outsourcing a company's SCM can look very well on paper. But once payment is in place, businesses are surprised with hidden fees including taxes and hefty shipping costs. This could have been prevented if the third party was efficient in providing cost projection.

Compromised quality

One of the biggest mistakes in outsourcing SCM is choosing a third party that is not knowledgeable about their industry. Most likely, the quality will suffer due to substandard materials, poor production, and lack of skills. This will decrease your sales and give your brand equity a severe blow. When this happens, competitors will take the upper hand, sending you in the lower levels of the supply chain.

Poor integration

The reason why companies outsource SCM is to ensure that it will run smoothly and with synergy with their present protocols. But if the service provider keeps on setting unrealistic timelines and designates unskilled personnel, integration would be problematic. Glitches like late inventories, slow distribution, and miscommunication will reduce your revenue. 

Outsourcing SCM can both be a boon and a bane. A company should fully assess the pros and cons to make it work to their advantage.