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What are the Best Tips for Supply Chain Outsourcing?

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  • Written By: Sherri Nield
  • Edited By: A. Joseph
  • Last Modified Date: 01 November 2016
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In order for companies to succeed with supply chain outsourcing, they must consider a number of factors. The best tips to effectively hand off supply chain management to a logistics provider involve knowledge and communication. Companies must have a thorough understanding of their current freight flow system and decide whether an outside party can bring efficiencies and cut expenses. After a provider is selected, ongoing communication and teamwork can make supply chain outsourcing work.

Before considering supply chain outsourcing, a detailed study should be conducted of how outsourcing would benefit current operations. Using a third-party logistics company to manage supply chain operations should allow the company to focus on core competencies. Effective supply chain outsourcing also should reduce interruptions in freight flow and allow the company to provide better customer service. Most companies lack the freight volume and industry knowledge to negotiate premium rates with steamship lines and trucking companies in order to lower transportation costs on their own.

Companies must consider any possible disadvantages with supply chain outsourcing, such as lack of visibility over freight flow or lower response time to customer needs. They also should look at the effects that outsourcing would have on the current operation. Hiring an outside provider might mean internal positions would need to be eliminated. Also, programmers might need to adapt existing software to be integrate with a third-party logistics provider's system.

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The current supply chain management strategy should be analyzed. Companies should perform a cost analysis to learn how much is spent on shipping, transportation and warehousing. A measurement can be computed to compare prices offered by companies that handle supply chain outsourcing. Companies should then calculate absolute cost, which is the cost of supply chain operations as a percentage of sales or cost per ton or shipping unit. The features and service areas that are key elements of the business and must be addressed by a provider should be listed.

A list of companies to consider for supply chain outsourcing can be created. A team of consultants who are knowledgeable in third-party logistics management is the best choice to evaluate available providers. Meetings should be scheduled with the supply chain management companies to explain the objectives and service requirements. Visits at providers' facilities should be conducted to observe the level of professionalism and efficiency. They should offer reports, tracking systems and 24-hour customer support to provide visibility and oversight to their customers.

The companies that seem most suitable should be asked to prepare a quote for their services, including each area of supply chain outsourcing. The quotes from the supply chain management companies can be examined thoroughly to look for hidden fees. Some third-party logistics companies use categories such a "corporate expense," "overhead" or "burden rate" to add costs. Also, their policy on inventory shrinkage and how much financial responsibility they bear should be examined. The hiring company can then negotiate rates and select the provider that best meets that company's needs.

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