We recently discussed multi-local supply chains and how businesses are shifting from a centralized, overseas source. However, there are still many companies outsourcing parts of their supply chain production overseas.
Outsourcing makes sense if someone else can do it better. However, if there’s something we can do ourselves, we should strongly consider all of the factors before outsourcing.
Consider the material and labor costs and calculate the increase in inventory and lead times for parts that need to be transported from the supplier to the production site. Also take into consideration quality issues, late delivery and expedited costs. Would your supplier have the same quality control or guarantee of an on-time delivery as you?
The key to successful outsourcing is integration—outsourcing works when the suppliers act as if they are a part of the same company. However, integrating suppliers is not always easy—most see themselves as completely independent from their clients.
Outsourcing without integration means the success of your company is dependent on the reliability of another. Many companies combat this by leveraging relationships with several suppliers so that if one can’t keep its promises, production does not get held up.
However, managing this network of suppliers requires trained supply chain professionals with strong forecasting skills. So, what’s a business to do?
If you find your supply chain system in performing poorly and impacting your bottom line:
- Simplify your supply chain as much as possible
- Choose suppliers wisely if you must outsource components
- Build lasting relationships with suppliers to ensure dependability
The last point may be easier for larger companies with a lot of business, but what’s a smaller company to do?
Smaller businesses may not be able to provide suppliers with as much business, but they can offer profit sharing rewards and keep suppliers engaged—sometimes the personal relationships we build are just as, if not more important, than bottom line relationships.
Take a look at your supply chain strategy and see if you’re getting it right—make sure you consider all of the hidden costs associated with outsourcing and only do it if you absolutely need to. Then, build a strong personal and professional relationship with your supplier—the more integrated and invested they are with the success of your business, the greater the likelihood they won’t let you down!