Supply chain management (SCM) is obviously a complex business. Think about the tasks and responsibilities that support and bookend the manufacturing process itself. These include: sourcing raw materials, disposing of packaging and storing inventory; not to mention the day to day admin of a production line or managing complex international supply routes and relationships.
These are the headaches that an entrepreneurial company, focused on innovation can be only too happy to delegate to others. They represent some of the hidden and ever-mounting costs of DIY supply chain management.
Divesting your business of these direct responsibilities can lead to tangible cost savings, and renew your focus on new product development, portfolio management, and ramping up sales.
Potential cost savings from an outsourced SCM
- Outsourcing costly and time-consuming logistic processes such as organising international shipments, making or taking deliveries and ensuring continuity of supply - can alleviate internal pressure on resource.
- Working with a specialist can secure better deals on raw materials, components and distribution, through their economies of scale and deep sector knowledge.
- Less money tied up in managing physical manufacturing and logistics can free up working capital and improve cash conversion cycle times.
- Reducing the need for physical space to store inventory can lead you to downsize and save money on warehousing - repurposing unused space to expand your R&D facilities.
- An outsourcing partner often has the ability to offer access to a greater range of product and supply solutions, offering additional technical and cost-saving benefits you may never have considered before.
- An outsourced manufacturer with multiple clients, can lever volume-based cost reductions across the range of services they procure on their client’s behalf.
- Released from the day-to-day ‘place and chase’ mentality of tactical purchasing, your procurement and management resource can switch their focus to longer-term goals and more strategic activity.
But getting SCM right is key to commercial success. According to Deloitte, 79% of organisations with superior supply chain capabilities (so-called "supply chain leaders") achieve revenue growth that is significantly above average.
In many ways removing day-to-day responsibility for maintaining and managing the full spectrum of a supply chain, promises cost savings and more time to devote to revenue generation. However, done properly it shouldn’t mean you relinquish every part of control and visibility over the production of your product.
How to mitigate the risks and lever the benefits of outsourced SCM
One of the dangers of outsourcing can be you lose your intimate knowledge and understanding of the evolving production techniques, available materials and supplier relationships that can affect future design decisions. But a good outsourcing partner will keep you up to date with the options and processes available to you, ultimately helping you improve the quality of the end product and your future innovation. More and more in the manufacturing sector there needs to be better co-operation and knowledge sharing between designers, OEMs and CEMs to build the most effective product.
NPI processes and Service Level Agreements
Before transferring production responsibilities to an outsourced supplier it’s important to get a complete sense of what they are going to do for you - and the steps they will take to do it.
The kind of visibility that CEMs are willing to give you, should include access to facilities (even virtually in the age of Covid) and relevant documentation to demonstrate how they work.
Your engineers need to evaluate whether the contract manufacturer has the correct equipment and can provide the controlled processes and consistent levels of quality needed to produce reliable products. They need to check the integrity of the defined process, flow and output, and their ability to support the overall testing requirements. This should also include satisfying themselves that the CEM's supply chain itself is sound.
Agreed NPI processes and SLAs should include the provisions for collaboration and inspection that will give you the confidence supply chains are resilient, but still have input and oversight where relevant.
A transparent and proactive relationship with an innovative, outsourced manufacturer, can relieve you of the minutiae and daily stress of SCM, while saving you money and empowering your organisation in unexpected ways.