Supply chain management encompasses all the planning, sourcing, procurement, conversion, and logistics activities a company may undertake to deliver goods and services. It involves coordinating and collaborating with channel partners, suppliers, intermediaries, and third-party service providers.
With the onerous task of delivering value and optimizing profits in the hypercompetitive global business environment getting more difficult for many companies, outsourcing their supply chain processes has become more appealing. An outsourced supply chain process happens when a company hires a third-party logistics (3PL) company to manage, improve and optimize its company’s supply chain.
A successfully outsourced supply chain process portends many benefits, including allowing a company to delegate storage and time-consuming fulfilment tasks while saving money and improving its supply chain velocity.
The advantages of outsourcing supply chain management remain multifarious. It reduces overall business costs, increases the time frame to specifically focus on business scaling
There is no end to the range of supply chain processes that a company can outsource to a 3PL. They include warehouse receiving, inventory storage, order management, inventory management, order fulfilment, automated shipping, returns management, and many more. While some 3PLs only manage a few supply chain tasks, others, especially tech-enabled 3PLs, can help their clients streamline their entire supply chain processes by managing logistics operations.
The advantages of outsourcing supply chain management remain multifarious. It reduces overall business costs, increases the time frame to specifically focus on business scaling, increases shipping time, more comprehensive flexibility range for business expansion, improves accuracy in order processing, and a better boost in customer satisfaction are just some of the latent benefits of supply chain outsourcing. However, outsourcing supply chain management to 3PLs comes with its attendant risks.
Challenges related to outsourcing supply chain management to the wrong 3PL, navigating unplanned costs associated with choosing an expensive 3PL, and the extensive onboarding process undertaken by many 3PLs are just a few of the downsides a company may have to deal with when it outsources its supply chain management to a third-party logistics provider.
Given that we have gone through the ways, means, advantages, and disadvantages of outsourcing supply chain management procedures, the rest of this article will analyze how a company can get its supply chain management outsourcing procedure right—in a way that ultimately benefits its customers and stakeholders.
The proper way to outsource supply chain management
These are the ways by which a company can adequately outsource its supply chain management:
1. Stabilize your enterprise resource planning (ERP) system.
Enterprise Resource Planning (“ERP”) refers to professional software systems that facilitate all information that impacts a company’s processes, including activities like managing inventories, tracking orders, and handling customers. For example, an efficient ERP system can help a company automatically run a financial analysis and predict future stock needs to keep inventory healthy.
Thus, before a company outsources its supply chain management, it is advisable that it build the functional capacity of its in-house ERP system. An effective ERP system ensures that a company has a detailed understanding of its supply chain needs; it also allows 3PLs to ease the pressure points on a company’s supply chain deficiencies since the company has accurate data on its logistics goals.
Process controls brought about by functional ERP systems can help a company record customer data, know in-demand stocks, and improve overall sales strategy, thereby lessening the challenges and improving the advantages of outsourcing supply chain management.
2. Build interoperability with a selected third-party logistics provider
A company’s chances of achieving seamless logistics processes by outsourcing supply chain management to a 3PL can be meagre if the company does not build interoperability with the selected third-party logistics provider.
Interoperability in supply chain management refers to the ability of a company to interconnect and share data with its logistics partners. Since many software-enabled logistics solutions all record data, the ability to share, connect and communicate recorded data with 3PLs can be invaluable.
Suppose data sharing is unavailable with the third-party logistics provider that a company has selected to manage its supply chain processes. In that case, that company should rethink the outsourcing agreement and find another logistics partner that provides interoperability options.
3. Endeavour to partner with trucking services that have advanced SPS capabilities
The Global Positioning System (GPS) is a US-owned utility that provides its users with positioning, navigation, and timing (PNT) services. In essence, the GPS tells where a person is on Earth.
GPS can be one of the most invaluable systems in supply chain management since it provides real-time data on the accurate geographical position of goods.
As a company seeking to outsource supply chain management, it is therefore essential that you partner with transportation services that have sophisticated GPS systems.
Working with 3PLs with inbuilt GPS systems can ensure that you have accurate data about where your goods are at a particular time. GPS allows you to maximize mobility and real-time data to track your goods and warehouse inventory, thereby achieving real-time status updates.
4. Maximize your business network by choosing third-party logistics providers
It has been noted that seven percent of trading information flows move through new forms of public business networks. A business network is a form of inter-firm cooperation that allows companies in different regions or countries to collaborate based on joint development objectives. This is usually expressed in a cooperation agreement.
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As a company, you can take advantage of the emerging capabilities of public business networks in vetting and finding a third-party logistics provider that manages your company’s supply chain processes.
We can find virtually these business networks via social networking sites, chat rooms, forums, email lists, discussion boards, and many more. Through the many signals of business networks, a business can enter into the right partnership with the requisite third-party logistics provider to smoothen its supply chain exigencies.
Conclusion
The provisions outlined above for properly outsourcing supply chain management remain significant ways companies can reduce logistics management’s workload by focusing squarely on maximizing profits and ensuring customer satisfaction. A well-functioning supply chain management system will allow many companies to thrive in today’s highly competitive global market. They will also thrive.
