Outsourcing various parts of manufacturing started in the high tech industry a few decades ago. Today, outsourcing is now the new norm in most industries today. In fact, according to a survey by Peerless Research Group on behalf of Supply Chain Management Review, 84% of companies say they outsource manufacturing to some degree. There is hardly a large company that is not leveraging the benefits of outsourcing for manufacturing, assembly, logistics, or other operations. Today, for example, consumer goods companies rely on co-packers, not only for small series where building dedicated plants is not cost-effective, but increasingly for packaging and other manufacturing operations. It’s the same for other industries like semiconductors or even pharma.
Why are companies outsourcing?
The reasons companies are offloading non-core activities are clear. Specialized partners can perform the work at a lower cost. They can also, in many cases, do a better job at it. Outsourcing is a response to the flexibility and fast response time requirements of the market. But, for all of its benefits, outsourcing also adds complexity. As the number of partners in the supply chain increases, so does the level of information exchange and coordination required among the different partners. Combine that with today’s trends such as product proliferation, shorter cycle times, and high productivity pressure and we’ve got ourselves an even more complex supply chain.
A complex problem requires advanced solutions
Unfortunately, ERP systems and other business applications that companies have used for decades, are of little help for today’s modern supply chains. These tools were designed to handle everything that happens within the four walls of a company. However, with companies increasingly using external partners, information is increasingly outside the scope of ERP systems. As a result, many companies are relying on exchanging Excel files with partners. This is another outdated approach to handling external trading partners. The limitations of such approaches are numerous.
- Mostly single-tier visibility. Since the process is mostly manual, companies are forced to focus on limited information from only key trading partners because they are unable to handle the amount of information exchange manually.
- Incomplete collaboration support. A high degree of collaboration is required when working with an outsourcing partner. Simple workflows like forecasts and POs are not enough to enable close business relationships with suppliers and contract manufacturers.
- Slow and sequential. Excel and other manual processes are too slow to keep up with the pace of new and constantly updated information. Automation must be introduced.
- Limited support for traceability. For many industries, product safety, quality and traceability are important, but it is challenging to manage when dealing with multiple trading partners. Quality and traceability must be built into processes and tools.
Lora Cecere, Founder and CEO of Supply Chain Insights, states “Systems are growing more complex. Yet, the primary means to manage trade with network partners is through spreadsheets and email. It is inadequate.”
Running an outsourced supply chain requires a higher degree of coordination and alignment across all supply chain partners that only a Supply Chain Operating Network can provide. At the core, it is an electronic supply chain network that connects all companies and allows them to operate as one virtual supply chain. It allows all parties to work off the same set of information, always up-to-date. In addition, it supports the different lines of business (procurement, supply chain, demand planning, order management, etc.) with solutions to make better and faster decisions using this up-to-date information from all the supply chain partners involved – from the end customer all the way to the raw material or parts supplier. A Supply Chain Operating Network extends what ERP has done for the company within its four walls. It provides a secure network for companies to coordinate supply chain activities in real-time. The result is true end-to-end visibility and collaboration across the multi-enterprise supply chain. The result? Quicker and more accurate decisions.
It is no surprise that companies that have been at the forefront of outsourcing are also the ones that have embraced Supply Chain Operating Networks. Early adopters leveraging such solutions see a range of benefits including:
- Shared, single version of the truth that all supply chain partners view and can act upon
- Always up-to-date, supporting the “always-on” economy
- All actors (OEM, outsourcing partners, but also suppliers) can fulfill their roles and responsibilities, making their own decisions but in full alignment with others
The bottom line is that better visibility and collaboration across your network of partners enable cost savings, improve customer service, and drive better business decisions.