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Supply Chain Management Business Process Outsourcing Can Offer Efficiency and Cost Savings

By Samuel Greengard

Supply chain management business process outsourcing (BPO) allows organizations to contract for a specific set of operational tasks through a third-party service provider. It taps cloud computing and an assortment of digital tools and technologies, including analytics, to facilitate these outsourced processes. The concept addresses a growing challenge for small and midsize companies: tackling supply chain management (SCM) in the increasingly complex and chaotic global arena.

A 2018 report by Everest Group found that the market for supply chain management business process outsourcing grew by more than 15 percent, to reach approximately $1.45 billion in 2017.1 The research firm noted that companies use supply chain BPO to “cut costs, manage risk, and meet evolving customer requirements.”2 Everest Group cited analytics, cloud computing, intelligent control tower, Internet of Things (IoT), and mobile device management (MDM) solutions as key digital levers in this market.

 

“Enterprises adopting these digital solutions have been able to achieve better supply chain efficiency at a lower cost,” Everest Group wrote. Meanwhile, a report from Future Market Insights noted: “Supply Chain Management BPO has become a need for every business to compete in a dynamic market environment.”3 The research firm cited “enhanced customer value, along with improved operational efficiency,” as core drivers for outsourced supply chain services.

 

Outsourcing Supply Chain Management Can be a Smart Approach

 

Experts say that what makes supply chain management business process outsourcing attractive is that it directly addresses the needs of organizations today to innovate, and to move faster, smarter, and with greater flexibility.

 

Supply chain management BPO is known to speed and automate a variety of tasks. These include:

 

  • Devising inventory norms for all nodes within a supply chain;
  • Conducting root-cause analysis for excess inventory or out of stock items;
  • Optimizing freight utilization by improving loading levels and routing;
  • Forecasting demand at the product category and SKU levels; and
  • Understanding overall service levels using the most up-to-date forecasts.4

A supply chain BPO initiative typically addresses three major business challenges, according to Everest Group. The first is the high price of operations, which includes costs for labor, commodities, fuel and energy, and freight. These factors are influenced by global competition and inventory levels. The second challenge is managing customer preferences, which involves delivering the right product in the right quantity at the right place and time – amid a backdrop of ever-changing customer expectations and volatile customer demand. The third encompasses risk and compliance management. This takes in regulatory frameworks, business continuity, financial volatility, and protecting intellectual property.

 

Improving performance is the core goal of outsourcing supply chain management. Consulting firm and solutions provider Capgemini reported that the approach typically results in a 10 percent improvement in forecasting accuracy and a 12 percent increase in order lead-time responsiveness.5 Capgemini further notes that supply chain BPO also delivers a variety of other benefits, including better forecasting, optimized distribution, reduced costs, and lower demands on working capital. Organizations that adopt a best-practice approach improve customer loyalty and achieve better bottom line results.6

 

Establishing a Sound Strategy for SCM Business Process Outsourcing

 

Experts say organizations seeking to take advantage of supply chain management BPO must address several key issues. According to Gartner, alignment between an organization’s supply chain strategy and the business process outsourcing strategy is critical.7 What’s more, because organizations often operate multiple supply chains, integration is paramount. Another key requirement is understanding the capabilities of outsourcing partners, including the depth and breadth of the services they offer.

 

Gartner recommends that organizations make outsourcing decisions based on strategic and tangible factors, rather than only on costs. “Some companies found that total costs didn't improve as much as anticipated because customer service suffered and quality problems increased after outsourcing,” it noted. It’s also vital to consider how disruption and intellectual property risks vary by region and country, and how well a provider delivers visibility into processes via real-time data. This may lead to changes in sourcing, distribution, and service-level agreements (SLA).8

 

Another best practice, according to experts, is to define and track service levels through a KPI-based approach. This makes it possible to understand which business process outsourcing providers meet expectations and which deliver subpar results. With this information in hand, business decision makers can add, subtract, and swap services as needed. A metrics-based approach also helps a business identify additional technology opportunities and put green supply chain management practices into motion. The latter is crucial for cutting costs and addressing the concerns – and buying habits – of environmentally conscious consumers.9

 

The

Takeaway:

Supply chain management business process outsourcing is an increasingly valued alternative for managing business operations. Small and medium-size companies that put the concept to work can gain agility and flexibility that typically lead to cost savings and revenue gains. Yet it also can prove challenging. It encompasses numerous tasks and processes that span different functions and multiple partners. However, organizations that adopt a more strategic approach to supply chain management and use BPO effectively may find that they’re better equipped to deal with the growing complexity of today’s business landscape.

Samuel Greengard

The Author

Samuel Greengard

Samuel Greengard is a veteran journalist who has contributed to many business and technology publications. He is also the author of two books: The Internet of Things (MIT Press, 2015) and the AARP Crash Course in Finding the Work You Love: The Essential Guide to Reinventing Your Life (Sterling, 2008).

Sources

1. Supply Chain Management (SCM) BPO Annual Report 2018: Moving Toward a Digital Supply Chain Ecosystem, Everest Group; https://www2.everestgrp.com/Files/previews/Everest%20Group%20-%20Supply%20Chain%20Management%20(SCM)%20BPO%20-%20Annual%20Report%202018_CA.pdf
2. Ibid.
3. “Supply Chain Management BPO Market: Global Industry Analysis and Opportunity Assessment 2014 – 2020,” Future Market Insights; https://www.futuremarketinsights.com/reports/scm-bpo-market
4. “Supply Chain Management BPO,” Capgemini; https://www.capgemini.com/service/supply-chain-management-bpo/
5. Ibid.
6. Ibid.
7. “Gartner Outlines Eight Key Best Practices in Supply Chain Outsourcing,” Gartner; https://www.gartner.com/newsroom/id/1784714
8. Ibid.
9. Ibid.

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