The Risks and Benefits of Outsourcing Supply Chain Management

We are committed to sharing unbiased reviews. Some of the links on our site are from our partners who compensate us. Read our editorial guidelines and advertising disclosure.

That's why some companies choose to outsource their SCM and leave it to a third-party organization. While this isn't for everyone, it can be suitable for many businesses. Here are some of the inherent risks and benefits of outsourcing SCM to help you decide if it's right for you.

The Risks

Unanticipated Costs
At first glance, the improved efficiency and financial savings may look appealing. The problem is that there is always the potential for hidden fees along the way when leaving this process in the hands of a third party. Issues like increased shipping costs for hauling freight and associated taxes can put a damper on cost projections that initially appeared promising.

Potential for Setbacks
Although outsourcing SCM will often look great on paper, it can be a complex process with plenty of opportunities for complications. If the third party you choose creates unrealistic timelines throughout distribution, it can lead to a host of problems. One scenario could be inventory not being received on time, which means consumer demand wouldn't be met. In turn, this could lead to revenue loss and further glitches within the supply chain.

Expert Advice, Straight to Your Inbox
Gain confidence in your business future with our weekly simple solutions newsletter.

By signing up I agree to the Terms of Use and Privacy Policy.

Integration Difficulties
Once your business has been fully integrated with a third party, operations should run relatively smoothly. The problem lies in the transition process, which requires plenty of financial backing and a considerable time investment from both parties. Even a minor lack of communication can result in mishaps and delays.

Quality Suffers
When the organization you hire for supply chain management lacks experience in your industry, the quality of your products may diminish. If the organization cuts corners, uses cheaper materials, and doesn't fully assess risks, it can be detrimental to your company. Sales can decrease along with your brand equity, and competitors are more likely to get ahead.

The Benefits

While there are a considerable amount of risks with outsourcing, there are just as many advantages. Assuming you perform enough research and join forces with a professional organization, your business can prosper.

Focus on Other Business Aspects
Because other individuals will be handling supply and distribution, you can spend more time on further building your business. SCM can easily eat away at precious hours, so you can use those saved hours for marketing, establishing customer relationships, and developing new ideas. This should make your company more productive and help your long-term success.

Minimize Overall Costs
By hiring a professional organization, you can use their expertise, knowledge, and connections to reduce your overall expenses. They will work on logistics and with other resource providers to develop the most cost-effective plan possible. This might include making changes like obtaining less expensive materials, transportation optimization, and better inventory management. If the organization decides to go offshore, this can boost your savings even more.

Meet Customer Demand
If your business has plateaued due to lack of resources, you may only be able to supply your customers with a finite number of products. When this is the case, it can be nearly impossible to grow and build your brand equity. Outsourcing can help you in this department because an organization will take the necessary steps to obtain the quantity of products your customers want. This can be the catalyst for major growth and propel your business into the future.

More Flexibility
By working with a third-party organization, you have access to their resources, which means you'll have help in creating a more extensive infrastructure. This way, you can pick and choose who your company does business with and make adjustments along the way.

Like in most other areas of business, with risk comes reward. If you're unprepared and haven't covered all the bases, outsourcing supply chain management can throw a wrench in your plans and hurt your overall efficiency. On the other hand, doing your research and hiring the right organization can do wonders for your company. It can make your life easier, reduce stress, and allow you to get more things done. It can also raise customer satisfaction, drive higher profit margins, and fuel growth.

Micah Pratt
Written by
Micah Pratt
Former Marketing Manager Micah Pratt has worked with several start-up websites providing SEO, content strategy, and content marketing support.
Recent Articles
Inventory app on tablet
The Best Inventory Apps of 2023
Choosing a good mobile inventory tracker makes it easier to manage your products on the...
Excel for Inventory Template
Free Excel Inventory Management Template
If you’re looking for a cost-efficient solution to inventory management, Excel is an excellent choice....
person using ipad to check inventory on abstract background
Top 7 Free Inventory Management Systems for 2023
If an inventory management subscription just isn’t in the cards for your business, here are...
fishbowl logo on faded background
Fishbowl Inventory Review 2023
Fishbowl is designed for manufacturing and warehouse inventory management. It stands out with its QuickBooks...