OUTSOURCING can significantly contribute to a new blueprint for supply chain management success by expediting the elevation of the procurement function to greater prominence and value through its effectiveness.
It may not be an exaggeration to say those supply chain departments that are not using outsourcing as a procurement strategy are probably leaving a lot of money on the table.
Outsourcing is a value-addition strategy that most supply chain professionals should be glad to embrace with open arms.
The concept of outsourcing is slowly gaining an all-industry universal appeal largely because it can contribute immensely to balance sheet flexibility by reducing the financial burden on organizations to invest in fixed assets.
Without outsourcing, the cost of acquiring the required equipment and materials will often defeat the pursuit of speed to market. It is also common knowledge that investment in fixed assets which may not be fully utilised due to volatility in the business environment can increase the overhead expenses without a corresponding return on investment.
Outsourcing can assist in converting fixed costs into variable costs by ensuring that upfront commitment of resources is minimised.
Today’s increasingly dynamic and volatile business environment has largely been responsible for placing a huge burden on the ever-stretched supply chains which has resulted in many companies struggling to adjust their production patterns in the event of a downward slope in demand and may equally struggle when demand eventually picks up at some point.
Outsourcing can step in as a way of managing such swings in demand and supply without necessarily making any permanent financial commitments.
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Supply chains can experience what is generally regarded as the “valley of despair” where productivity is often forced to take a nosedive due to factors beyond the control of the organisation.
Supply chain professionals often rely on outsourcing to respond to periods of sudden peaks and valleys, providing the solution to managing seasonal or cyclical demands.
Supply chain flexibility being the top deciding factor. Outsourcing can make it easy for supply chains to adjust to sudden spikes in customer traffic allowing organisations to scale operations up or down based on demand.
In this highly volatile business environment, the key for leading organisations is agility, speed and flexibility which enable business organisations to stay ahead of the0 value curve while breeding a culture of continuous improvement for its varied customer segments.
The concept of outsourcing as a procurement strategy could also become handy where it could be considered necessary to fill in gaps in product or process knowledge or in specific circumstances where companies lack the internal expertise to produce optimally due to skill shortages.
This kind of approach has benefited small and upcoming business organisations as and when they adjust to the gradual increase in demand patterns.
In the midst of bustling supply chain schedules, small organisations may require specific skillsets which may not necessarily justify the full-time employment of a specific resource to fulfil a temporary increase in demand.
The organisation can rely on labour broking to invest in scalability which will allow the business to handle growth seamlessly, maintaining performance levels while sustaining the competitive edge in the market.
Supply chains can easily adjust their operations swiftly and smoothly through labour outsourcing allowing seamless scalability without additional permanent staff.
Where an organisation experiences seasonal fluctuations that may strain resources, it may be necessary to search for external expertise without maintaining a full-time workforce.
With full-time employees, the actual cost of employment extends beyond the actual salary. Organisations will be required to take care of training costs, medical aid related costs and other benefits such as transport, accommodation and welfare related costs.
Outsourcing will allow supply chains to tap into specialised skills and knowledge that may not be resident in-house. The organisation will be able to temporarily tap into a broader range of skills and capabilities from outside, thereby sharpening the competitive edges of your business.
Outsourcing often allows organizations to enjoy the best of both worlds enriching performance outcomes with diverse perspectives and approaches.
As a corollary of the above, diversity of tasks within the business organisation often exceeds the capabilities of internal competencies.
In the majority of business entities, manpower is often regarded as an important indispensable resource (and rightly so) but in most cases it generally comes at a relatively high cost.
To achieve headcount reduction or to minimise the fluctuations in staffing levels largely driven by the need for peculiar diverse skills, organisations may turn to outsourcing as a way of bridging the staffing gap.
Outsourcing truly makes the world global, giving organisations the opportunity to access the best talents from all over the world. Outsourcing emerges as a viable option for harnessing the wealth of experienced talent. This will allow organisations to select among a wide repertoire of experts.
It is regrettable to note that in many organisations there are so many assets or facilities that are not optimally utilised and could even remain untouched for months and in some cases for years.
There is no economic gain in buying a staff bus, which will only be used for ferrying staff members in the morning and in the evening while spending the whole day parked (and is always half empty whenever used).
Such kind of practices will only increase your overhead costs while there is no corresponding return from “sweating” the asset. It is, therefore, advisable for companies to outsource such kind of services and invest money in other income generating activities.
Or better still it could make economic sense to invite other companies with no staff bus of their own and operate in your area to utilize your bus at a discounted rate.
Same could be done for the combined use of canteen facilities with your neighbouring companies. Gone are the days when having a huge asset base was regarded as a competitive advantage.
Companies churning out billions in turnover today do not rely on huge asset bases.
Outsourcing could also be a reliable source of category expertise since service providers within a certain industry will have vast experience in offering a certain product or service to a huge diverse spectrum of end users that they serve.
In a majority of cases, outsourcing providers are ordinarily specialists or experts in the outsourced areas and because of that they are likely to enjoy economies of scale from the maximum use of machinery or the benefit of expert knowledge.
Economies of scale and scope will translate into a reduction of unit costs and the production of quality goods due to the experience curve effects.
Lack of capacity utilisation optimisation could easily turn out to be a huge cost to any business because of the need to continue paying a huge burden of overhead costs without getting a corresponding return.
Outsourcing will give suppliers or service providers combined volumes which reduces the unit cost to customers due to quantity discounts.
Outsourcing can also allow your organization to get unlimited access to a wide range of sophisticated resources such as the benefit of modern technology without any necessary capital investment.
It will allow supply chains to take advantage of third parties innovative product development, superior customer services and efficient manufacturing processes.
This will allow a small organisation the same level of access to technological expertise as much as large organisations. Outsorcing will, therefore, make it easy for small companies to access the latest innovative business processes, leveraging on cutting-edge systems and methodologies.
Outsourcing has often been used as a strategic option for small organisations to outdo their competitive limitations. As is often said, outsourcing is the shortest road to innovation.
Outsourcing also makes it easy for your organisation to enjoy the benefits of keeping the business ‘awake’ at all times, regardless of the different time zones.
It will make it easy for organizations to transcend the confines of the well-known traditional eight-hour workday, allowing the business to access global markets 24/7.
Outsourcing labour resources from different time zones will, therefore, give the organisation the opportunity to leverage a 24-hour trading cycle.
It will allow your business to provide a round-the-clock access to your products while your business is closed in the home country.
It gives your organisation the competitive advantage of round-the-clock business continuity leveraging the use of third-party teams working across different time zones, all around the world.
The leveraging of the time zone advantage will ensure that your customers have a non-stop customer support line.
Outsourcing can also assist in coming up with reliable budget estimates. Outsourcing contract templates are often fixed and defined at the time of signoffs, and this often transfers the burden on price shifts and financial risks to the service provider.
It also gives the organisations the much-needed spend visibility because costs associated with product and or service provisioning are known at the time of signing supply or service contracts.
Since departmental budgets are crafted within a specified envelope of resources, organisations are now under no illusion whatsoever that procurement should take a leading role in ensuring that budget compliance is no longer an option.
In conclusion, in the opinion of a significant number of procurement professionals, supply chains will remain stretched thin all the time.
Opportunities will remain thin on the ground. It is, therefore, important that everyone in the supply chain profession must be seen to be doing something. No passengers on the bus. A little sleep and a little slumber so shall supply chain challenges continue to multiply.
Supply chains are at a crucial time when the complexity of the problems they are faced with often exceeds the complexity of thinking required to solve them.
It may, therefore, be important for supply chain professionals to go above and beyond their brief to put a double shift for half the recognition.
Outsourcing is being espoused as a potential silver bullet by many organisations throughout the world and for good reason.
It has been acknowledged that the benefits associated with the full use of outsourcing are plentiful and will remain plenty. Outsourcing’s pivotal role in creating value remains undeniable.
This useful concept will continue to hold its place as a value-addition strategy destined to move the performance needle forward. With that promise, outsourcing is moving to the forefront of business strategy in many industries and capturing the attention of senior management.
Supply chain professionals are of the firm belief that the quest to build a highly responsive and efficient supply network lies in outsourcing.
The model will work well where supply chain professionals promote the pros while avoiding the cons. It must however be noted that outsourcing will not go the full distance on its own and it can bring its own diverse suite of risks.
There is need for businesspeople to continuously validate its relevance given peculiar circumstances of your particular business.
Nyika is a supply chain practitioner based in Harare. — charlesnyika70@gmail.com.
