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The Risks and Benefits of Outsourcing Supply Chain Management

3 minutes read

Selling products online seems easy. Nowadays, literally, anybody who has internet access can open an online store. But as the business grows it involves more and more steps. And naturally, more problems arise.

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Selling products online seems easy. Nowadays, literally, anybody who has internet access can open an online store with such solutions like Shopify. But as the business grows it involves more and more steps. And naturally, more problems arise.

Due to that, many business owners choose to outsource some steps to third parties. Because you cannot concentrate on developing and scaling a business when all your effort goes into solving small problems along the way.

Outsourcing supply chain management can be a godsend for a struggling business owner. Or it can become just another problem that you have to solve.

In this article, we outline the benefits of outsourcing supply chain management and possible risks that you might encounter with it.

What does supply chain management involve?

Basically, supply chain management is a business approach ? that includes managing all the steps of getting your product or service to the end-user and working with returns.

Depending on the business area, supply chain managers might control anything from the flow of raw materials, logistics, and manufacturing to strategizing and coordinating business functions and tactics.

Naturally, finding a great supply chain partner who will manage such a huge part of your business ? is as difficult as it is important.

The cons of outsourcing supply chain management

In an ideal world outsourcing always works out well. But we do not live in that world and there are cons ?‍♂️ to everything.

Possible integration issues ?

The onboarding process of integrating your business with your supply chain partner in an ideal world would go smoothly and quickly.

But in the real world, this process might take more time than expected. And time is money. ? If one of the parties does make enough effort to hold its end of the deal, if the communication is not effective enough, the process of integration can become a headache. And the following cooperation might not be as good as expected.

That’s not to say that after the onboarding the working process will also be riddled with issues. Things can run smoothly from there. But this initial integration might not be ? painless.

Hidden costs ?

Ideally, while discussing the pricing you and your partner have to come to some agreement that will work for both of you. But if your supply chain partner is not completely ? transparent with their pricing, the final cost of services might not be what you have expected.

Additional costs of freight, shipping, or labeling might pile up along the way and you might find that this partnership is draining your funds.

Quality discrepancies ?

To create and manage a perfect product, one needs to know all ins and out of the process involved in creating the said product. If your supply chain partner does not have the necessary knowledge, problems will arise. ? Problems that you never had before.

More than that, if your partner decides to choose low-quality materials to reduce costs or cheaper logistics, this might make your existing customers leave and your new customers to return the low-quality goods immediately.

The pros

In theory, effective management of any kind is supposed to reduce costs, increase revenue, and optimize processes. Despite the possible risks of integrating a supply chain partner, the prospect benefits make it worthwhile.

Free up time for business development ⏳

You cannot concentrate on scaling up your business when you are forced to dedicate all your time and energy to plugging holes. ?️

Supply chain management partner is supposed to solve this problem. While all fulfillment steps are taken care of, you can do what you do best — strategize further development ? and build your brand.

Get a competitive advantage ?

With outsourcing supply chain management, you get the resources ? that you’ve never had before. Your supply chain partner has the competencies and infrastructure that you can use to not only stay afloat on the market but also get ahead of your competitors. ?

Risks management ?

Since your partner already has the infrastructure and the necessary amount of employees ?‍?‍?‍?, you do not need to worry about any of that. You save on the initial costs of creating the system from scratch. And you are covered in case the business does not take off as you have planned.

Keep your inventory in check ?

The network of fulfillment centers and effective management of a supply chain partner changes the way you manage your inventory. You can effectively strategize the number of products ? that you need to meet customers’ demand and plan for growth, while your partner makes sure to plan the materials and resources needed to fulfill your strategy.

Cost efficiency ⚡

If your supply chain partner has the necessary expertise and the required resources, you will save money. The cost-efficient system of supply chain management will free up funds that you can redirect into business investments.

Be more flexible ?

Working with a supply chain partner allows you to adapt to changes quickly. ?‍? You can make changes in your strategy faster and make the process of downsizing or upgrading practically painless for your business.

Leverage third-party expertise ?️

You cannot know everything or have all the necessary competencies. ? Your supply chain partner can.

Getting new knowledge beyond the scope of your business area from a supply chain partner gives you a competitive edge.

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