Outsourcing Benefits in Supply Chain Management

Introduction

Supply management system coordinates functions purchasing. This mechanism identifies the need for commodities, appropriate suppliers, quantity and quality of the commodities. It also evaluates effectiveness of supply practices already in place. The expansion of capacity and mechanization of production demands that the supply system matches production efficiency while assuring quality of the supplied goods. This analytical treatise attempts to explicitly review the concept of strategic outsourcing in the supply chain management. The decision process and challenge of operational implementation of outsourcing are also discussed. In addition, the treatise explores the benefits and potential risks of outsourcing in supply chain management.

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The concept of outsourcing in supply chain management

Strategic supply chain outsourcing is the process of hiring the services of an external agent to properly manage and control the supply chain of a company with an intention of optimal performance and goal achievement (Hilletofth and Hilmola, 2010). A well outsourced supply chain is a prerequisite for confidence and trusts without and without a company’s market catchment. Accessibility and transition in the outsourcing plan will ensure efficiency and proactive response to further improve on the demands of prospective clients (Park et al. 2010).

Supply chain outsourcing decision process

Outsourcing decision for the sensitive supply chain department of a company is very challenging since the company has to trust an external party to manage its supply chain. In to reassure confidence in outsourcing the supply chain, the company should correctly review the activities within the current supply chain to be outsourced (Hilletofth and Hilmola, 2010). The company may also consider a tight contract and avoid the lowest bidders when calculating the gain from outsourcing (Park et al. 2010). There should be clear channels to manage the outsourced activities that define the objectives and expectations of the company. The company must have the aim of reassuring confidentiality since the outsourced agent may have ill intentions with the company’s supply chain (Hill et al. 2009).

The topological structure of the decision should consist of communication and operations management system which help in determining efficient performance and optimal resource use in the outsourced activities. The continuum of increasing the value of quality in operations of the staff lies in data, information, and knowledge (Hill et al. 2009). Based on the credo emphasis, it stresses on ethical behavior and customer satisfaction within accepted standards of moral obligation on the forefront, while the stakeholders at the bottom of the triangle (Park et al. 2010). The management should consider a decision that can help in supporting a single contact point as the basis of the operations management model. This system tracks input and output ratio and measures the intrinsic efficiency of the outsourced agency and the company in line with set targets (Hilletofth and Hilmola, 2010).

The company should endeavor to create a decentralized decision support system. Despite having this efficient operations management system, the company has not fully established a mechanism for monitoring progress at micro level and majorly depends on macro auditing in decision making and has to deal with the risk of internal fraud and redundancy (Hilletofth and Hilmola, 2010). The decentralized system may incorporate planning, development, implementation, and discovery (Park et al. 2010). Reflectively, the process captures organization chart, status reports, process map, compliance requirements, review structure, activities, dates, and resources employed within a specified period of time (Hill et al. 2009).

The barriers in operational strategy in supply chain outsourcing

The main barrier in operational strategy in supply chain outsourcing is the change in management strategy which may affect other department in the company. The outsourced agent may interfere with the organizational culture and long term strategies when the outsourcing contract has some loopholes (Hill et al. 2009). Besides, there may be communication disconnect between the mother company and the outsourced agent when the roles of the outsourced agency are ambiguous (Hilletofth and Hilmola, 2010).

Benefits of outsourcing in supply chain management

Strong distribution, fair retribution process, and passing accurate information

Among the new development elements that are incorporated to build trust in the outsourced supply chain are establishment of a strong distribution, fair retribution process, and passing accurate information to target audience to restore confidence within the new networks (Park et al. 2010). Customer retention is achievable through the creation of reliable and affordable marketing channel that is essential in monitoring a matrix that maps out potential competitors and identifies weaknesses and strengths of the clients. Input from the production section is processed to chart a supplier’s trend in adherence to quality, quantity, and timeliness of deliveries (Hill et al. 2009). Communication of the quality guidelines minimizes the risks of product rejection/return. In the absence of a guide, variance is more probable. In such a case, the delay before replacement may slow or halt production; consequently, potential revenue from processed products is missed (Hill et al. 2009).

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Sharing supply sub-system facilitates direct transactions and generation of reports that rate a supplier’s performance. Due to its dynamic reporting, anomalies in supplying quality are communicated instantaneously to the supplier to initiate corrective action. With a supplier audit, non-conformance to specifications in supplying commodities and modes of supply are identified (Park et al. 2010). A report of the audit is then discussed with the supplier to implement a corrective remedy. As a balanced assessment of a supplier’s performance, the scorecard is thus an objective tool to guide quality in supply (Liu and Nagurney, 2013).

Automation of the outsourced supply chain management strategy

An improved approach to supply management through automation will establish a broader partnership with customers. The buyer will make an effort to learn the supplier’s values, vision, challenges, and operating environment. A spirit of collaboration established will offer a positive contribution to the partnering businesses. Such cooperation will turn supply chain into a competitive advantage instead of sole cost (Hilletofth and Hilmola, 2010). This should be backed by a legal contract. It further provides for explicit conditions in executing the contractual partnership. Due to their explicit nature and legal enforcement, a contract assures quality of supply to the agreed specification (Hill et al. 2009).

Production efficiency is critical in the production line since it is characterized by optimal utilization of allocated factors of production within the least possible cost. Quality improvement will be used to measure, assess, and improve client service delivery outcomes (Park et al. 2010). The success in quality improvement and organizational change management is dependent on the alignment of the production soft skills and sustainability strategy (Hilletofth and Hilmola, 2010). This process can be achieved through outsourcing.

Cost management in the outsourced supply chain

The element of increased competition as part of the future development is well assured when the objective of outsourcing is aligned to cost reduction in doing business. However, what makes this strategy effective is the constant formulation and implementation of strategic policies based on its knowledge of the customer needs in the supply chain management (Hilletofth and Hilmola, 2010). Sustainable development is vital to business environment when outsourcing is incorporated in the business development goal (Hill et al. 2009). Generally, outsourcing and supply chain management strategies are interdependent to ensure that the business is sustainable. For implementation of the strategy, the management is to balance both the short term and long term consideration towards decisions making (Park et al. 2010).

Integration of entry strategy, comparative advantage, and market segmentation

In order to achieve desired margins in sales and total revenues generated, a proper supply chain plan should integrate entry strategy, comparative advantage, and market segmentation since in most cases, there is always a strong competitor or competitors that passing might prove challenging due to existence of consumer perceptions and household names (Park et al. 2010). To increase credibility and maintain professionalism, the outsourced supply chain plan should encompass processes and features that flawlessly facilitate healthy and lifetime relationships between the business and its clients (Hill et al. 2009). Among the new development elements that can be incorporated to build trust, include establishment of a strong distribution, fair retribution process, and passing accurate information to target audience to restore confidence within the new networks (Hilletofth and Hilmola, 2010).

Delivery and customer satisfaction

Besides quality in service, delivery and customer satisfaction depend on the marketing segmentation as part of the outsourced supply chain program. Therefore, customer retention is achievable through the creation of reliable and affordable marketing channel that is essential in monitoring matrix that maps out potential competitors and identifies weaknesses and strength of the clients (Hill et al. 2009). Moreover, the reporting criteria adopted by the outsourced supply chain agents should reflect the success of marketing calendar and set targets generated from time to time (Hilletofth and Hilmola, 2010).

Essentially, success of brand and product management in a new market depends on a proper alignment of a functional idea into the creation of flexible, involuntary, and quantifiable measurement of perception among the target audience in the supply chain (Park et al. 2010). Reflectively, this idea should have essential elements that can easily sway the mind, either positively or negatively.

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Logistics outsourcing relieves a company of fixed costs irrespective of seasonal trends and market demand (Park et al. 2010). Through a competitive process, the outsourced unit will develop a balanced control system for a sustainable level of efficiency, costing, dependability, speed, quality, and flexibility through value delivery, value addition, and creativity (Hilletofth and Hilmola, 2010). The outsource logistics team will have the responsibility to rationalize the scientific aspects of the supply chain such as the use of statistical tools, their application, and evaluation criteria in monitoring and managing the logistics. When the outsourced logistics regulator is properly balanced, efficiency in the supply chain management is achievable (Hill et al. 2009).

Risks of supply chain outsourcing

Towards implementing marketing function, the outsourced supply chain management strategy may mismatch the elements of the marketing mix to inappropriate plans to reverse the gain made with the loyal customers since the new strategy may not go well with the traditional customers and suppliers (Hilletofth and Hilmola, 2010). For instance, through an uncontrolled supply chain outsourcing, the core competencies such as knowledge of the market, supplier relations, and expansion of business operation may be compromised since the outsourced agency may only aim at maintaining profits and ignoring other equally important elements of sustainable supply chain (Park et al. 2010).

Important tools in safeguarding quality are the supply management system, supplier manual, supplier scorecard, and supply contract. However, breach of contract may occur that requires a legal solution (Hilletofth and Hilmola, 2010). The process is cumbersome before an award for claimed damages are granted and mistrust between these parties is often irreversible. Therefore, such an organization should brand its business as the most competitive in terms of charges for service delivery and reliability in its outsourced supply chain to balance the outsourced activities in the supply chain (Hill et al. 2009). Besides, the organization must put in place stringent measures and strategies aimed and monitoring expansionary modules in the outsourcing of supply chain agents within feasible levels.

Conclusion

Outsourcing supply management system plays a critical role in business process. A modern approach to its management proposes building stronger relationship with a customer to minimize variation in quality. Important tools in safeguarding quality in the outsourced supply chain are the supply management system, supplier manual, supplier scorecard, and supply contract. However, breach of the supply chain outsourcing contract may occur that requires legal solution. The process of resolving the conflict is often very cumbersome before an award for claiming damages are granted and mistrust between these parties is often irreversible. Thus, when outsourcing the supply chain function, it is necessary for an organization to balance the goals and competence of the outsourced agency.

Reference List

Hill, J., Stephanie, E., Darryl, W., and Bertie, G 2009, “The effect of unethical behavior on trust in a buyer–supplier relationship: The mediating role of psychological contract violation”, Journal of Operations Management, vol. 27. no. 1, pp. 281- 293.

Hilletofth, P., Hilmola, O 2010, “Role of logistics outsourcing on supply chain strategy and management: Survey findings from Northern Europe”, Strategic Outsourcing: An International Journal, vol. 3. no. 1, pp. 46 – 61.

Liu, Z., & Nagurney, A 2013, “Supply chain networks with global outsourcing and quick- response production under demand and cost uncertainty”, Annals of Operation Research, vol. 208. no. 1, pp. 251-289.

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Park, J., Kitae S., Tai-Woo C., Jinwoo P 2010, “An integrative framework for supplier relationship management”, Industrial Management & Data Systems, vol. 110. no. 4, pp. 495-515.

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