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In
contemporary business world there is a fierce
struggle among competitors. The competition is
strong in almost every industry branch. Even if
there is a new industry established, soon it
becomes filled of competitors with different
approach strategies.
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In
such environment, with many sharks in a small
pool, it takes a lot of smart,
effective and efficient
strategies and actions for the company just to
stay in the game. It is even much harder to be a
leader in the industry. In order to achieve such
organizational and cost efficiency, any company
need to have subtle approach that will give the
way to sustainable competitive advantage. One of
the methods of organizational and cost efficiency
is the supply chain outsourcing.
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The
supply chain outsourcing is the method of
dislocation of supply chain
activities to the third parties,
with the purpose of organizational simplification and
expenditure flexibility. The supply chain outsourcing is
a business opportunity that can cover several different segments of supply chain or
several of them combined.
Production
Outsourcing
| Production
outsourcing is the type of supply chain outsourcing
where the part or whole production process is given to
the third party producer. The production outsourcing can
be partial in case
when company wants to reduce complexity in its own
plant. Another reason for production outsourcing is the
testing production, where the production is outsourced
for a specific period, until is possible to start with
in house production. Finally, there are situations where
the company totally outsourcers production in case that
the priority is development, |
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| marketing and sales, or
simply in situation when the sales volume does not
satisfy the minimum financial justifiability
for local production.
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The
advantage of supply chain outsourcing of production is
simplification of processes, cost efficiency and
focusing on other business functional activities. The
disadvantage of production outsourcing is lower level of
control, possible
quality
issues, waiting for production
window and loosing of cost efficiency element in case of
large volume. If the volume grows, than it make sense to
move production in house.
Warehouse
Outsourcing
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Warehouse
outsourcing is another method of supply chain
outsourcing where the part or the whole warehousing is
outsourced.
For example, the company may
keep its own central warehouse, while outsourcers
peripheral warehouses. In this case it is wise to have
own central warehouse, due to proximity of local
production, handling of raw |
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material and having overall
high warehouse throughput. On the other hand, peripheral
warehouses have lower volume and utilization; therefore
it is reasonable to outsource them.
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Advantage
of warehouse outsourcing is the simplification of stock
handling and cost reduction. The warehouse outsourcing
is especially cost efficient if the payment of
outsourcing service is calculated based
on number of
units handled in a given
period, since the cost is proportional to the business
volume. Disadvantage of warehouse outsourcing is lower
level of control, possible problems with inventory
control and possible problems with proper stock handling
( FEFO, breakage ).
Delivery
Outsourcing
| Delivery
outsourcing is the third important method of supply
chain outsourcing. The delivery outsourcing gives
opportunity to the company to relieve organizational
pressure of delivery, while keeping focus on sales. The
company pre-sale products through its own sales force,
while 3rd party logistic delivery agent conduct the
distribution.
This
method is cost efficient, in case that payment is done
on volume delivered basis. It is necessary to be careful
during the contract negotiation. If there is minimum
agreed quantity clause placed in the contract, then it
should be respected, in order to avoid penalties or
contract termination. Another significant drawback of
delivery outsourcing is potentially lower service level
( delay ) and problems with relationship with customers.
Supporting
Services Outsourcing
Beside
these three main types of supply chain outsourcing,
there are
possibilities for outsourcing
of many other supporting services. That can be seasonal
workers in own production or warehouse process. Also,
any other supporting services, e.g. Maintenance can be
hired.
Where
the strength and cost efficiency comes from in
case of supply chain
outsourcing? Basically, the logistic outsourcing partner
is usually external partner specialized in one segment,
like delivery or warehousing. Narrow, niche approach of
logistic partner enables those
service owners to specialize
and achieve potentially higher capability in that
segment, than the hiring company
itself. Also, outsourced
logistic partner is usually more cost efficient due to
specialization and the economy of scale, in case that is
engaged on more than one outsourcing contract.
On
the other side, there are negative sides of supply chain
outsourcing. The hired agencies sometimes
are
not showing the same level of respect to the whole
process, since they covers only one part. Another danger
is potential leaking of business data and knowledge that
can be used as backfire to the company that hired supply
chain outsourcing.
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As
a bottom line, the conclusion is that the supply chain
outsourcing is a
business opportunity for
development in any industry. Specialization in one
segment gives factors of high efficiency and lower costs
that produces as result the sustainable competitive
advantage.
Recommended
reading:
An
Introduction To Supply Chain Management
Making
The Most Of Your Supply Chain Metrics To Leverage
Competitive Advantage
Supply
Chain Management 101
The Fundamentals Of Supply Chain ROI
Supply Chain
Concept
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