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The Risks and Benefits of Outsourcing Supply Chain Management

If your eCommerce business is being overwhelmed by supply chain issues, you’ll likely find it hard to focus on growth while putting out fires. Things like customer service, parts shortages, unprecedented inventory growth, and warranty management can take up internal resources and affect your profit margins, especially if it’s preventing you from focusing on the business.

Thanks to supply chain management (SCM) companies, eCommerce sellers can now pay more attention to their core competencies rather than spending all their time and assets managing logistics.

Effective Supply Chain Management has become an essential component for business success, since it translates to healthy inventory levels and fast, reliable delivery, which are critical to uninterrupted business and happy customers.

On the other hand, failing to manage your inventory will disrupt business, cause stock outs, provide poor customer experience, and could get you negative reviews.

Smart eCommerce sellers can consider outsourced supply chain management to free up their time, but there are risks and benefits to this. We go through some pros and cons below to help you decide if it’s right for you.

What are the Benefits of Outsourcing Supply Chain Management?

Outsourcing SCM has several advantages that work towards maximizing profitability at the end of the day. However, these advantages can only be realized when you hire a reputable logistics provider.

Outsourced SCM will help you focus on your core competencies

Once you have outsourced supply and distribution to a third party, it becomes easier to spend more time on building the business and focusing on the future strategy. SCM can eat up precious time that would have been spent developing new ideas, marketing, and strengthening customer relationships: factors that are crucial for long-term success.

Outsourcing SCM gives competitive advantage (efficiency)

When you outsource, you get access to facilities, knowledge, and capabilities that were initially inaccessible or unaffordable. You then get the chance to leverage on these resources to help you stay ahead of your competitors.

It reduces overall costs

When you hire a professional organization, they will use their knowledge and expertise to help you reduce your overall expenses. Usually, expenses associated with inventory, cold storage, sampling, overhead, and staffing can pile up and cause a financial strain.

However, when you work the right supply chain partner, these costs can be reduced significantly. The partner will streamline logistics and establish the most cost-effective plan that can reduce the costs associated with performing specific functions. Some of the new changes may include better inventory management and transport optimization. In the end, the business will have more cash for investments.

Ensure you meet customer demand

The outsourced SCM will take the responsibility of supplying the amount of products demanded by customers. They will be responsible for raw material planning to meet production schedules. When these responsibilities are offloaded, the business will spend more time on growth and building brand equity.

Increase flexibility and adaptability

Outsourcing allows a business to adapt quickly to the changes in demand. When you outsource, you can expand or downsize faster without having to worry about labor and labor laws. Increased flexibility is especially needed in today’s uncertain economies.

Reduce your overhead and risks

Outsourcing a company’s logistical needs reduces labor risks and the financial risk of an investment in equipment, property, and transportation in case the company downsizes.

Increase your capabilities and extend your resources

Your company may be limited in resources and tools. However, outsourcing partners can bring extra capabilities, solutions, and expertise beyond the scope of the business. Your organization will then get a chance to utilize these excellent tools to increase productivity and efficiency. Logistics or cargo companies normally have industry connections that you can leverage on to save on cost and to improve your capabilities.

What are the Risks of Outsourcing Supply Chain Management?

Although outsourcing SCM has a considerable number of benefits, there are just as many risks.

Quality may suffer

Your SCM partner should have extensive knowledge of your products or services. Otherwise, the quality of your offerings may diminish.

This risk is increased when the third-party company tries to cut corners or use cheaper materials. Such practices can be detrimental to your company and may significantly reduce sales, alongside your brand equity, so avoid using SCM partners who don’t prioritize quality.

You could face setbacks

Outsourcing SCM can become a complicated process that opens up more chances for setbacks. Watch out for unrealistic timelines that could cause revenue loss and more issues down the supply chain.

There may be integration challenges

Watch out for solutions that have a long onboarding process.

The business operations become smooth once a business is integrated with the SCM partner, but the transition process can be a nightmare. It requires both parties to invest a considerable amount of time, and it also requires a good financial backing. If either party slacks, then it can cause delays and several mishaps. Several problems are likely to arise during the transition phase because this stage requires better communication besides time and money.

There could be unexpected costs

Occasionally, taxes, shipping costs, and other hidden fees may get out of control. Some 3PLs have multiple hidden costs, such as labeling, pick and pack, boxing, and more. To avoid this, work with providers that are transparent with their costs so you can protect your profit margins.

 

Calculate how much it would cost to work with a fulfillment partner

 

It’s up to eCommerce sellers to decide which solution is right for them. Risk and reward comes hand-in-hand, but if you do your research and select the right partner, you’ll be able to streamline your eCommerce business and focus on growth.

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