Question

Why would a company outsource parts of its supply chain? Explain the value of this practice and why so many companies use it today. What are some operational challenges that outsourcing can present?

Answer 1

Monitoring the activities of supply chain management can be a challenging task and this is the reason most of the organizations are looking to outsource these operations to the third party vendor.

The main reasons for this outsourcing are as below:-

• By outsoaring the supply chain activities, the companies can focus on their core business activities. The activities involved in SCM can require a lot of efforts and hours of a business organization which could be used in developing the competitive advantage over the competitors
• The organization can control the operational cost of SCM by hiring a professional firm which has the expertise, experience and required skills to manage these activities quite efficiently.
• By having the external party managing the SCM activities, the companies can ensure the availability of products to the customers on time and at the right place.
• By having the third part resources, the firms can have greater flexibility in its operations by using the resources of these outsourcing organizations.

Operational Challenges:- There are a number of challenges which can be faced while outsourcing SCM operations. The biggest challenge is of difficulty in integration. When there is a proper integration of the company with the third part firm, then there can be a smooth working of these functions. But the main issue will be experienced during the transition process which will need to tie and a lot of financial resources. If even there is a small miscommunication, it might result in a lot of delays and mishaps and this can create hurdles in the operations of the supply chain.

There can be a number of unanticipated costs while outsourcing these activities. If an ideal situation, the organization can have the financial savings and improved operational efficiency while outsourcing the activities but in practicality, there could be a number of hidden costs which can be resulted while handing over the activities of SCM to a third party. Increased shipment costs, higher taxes are some of the issues which can result in an increased overall cost of outsourcing these functions.