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The tangible commercial benefits behind the transfer of supply chain ownership

When considering the benefits of strategic outsourcing, the obvious and clearly significant areas of focus tend to be directly linked to an organisation’s need to grow sales revenue and market share by increasing production capacity, creating flexibility within the manufacturing process and reducing lead times, both internally and for the customer.

However, in addition to the production and operational advantages, there are also the regularly overlooked commercial benefits.

Supply chain ownership

An important portion of the overall outsourcing process should be the outsourcing partner’s ability to take on supply chain ownership and manage the exercise for its customer. This requires valuable experience and the necessary competence, in order to streamline the supply chain; improving efficiencies and associated costs at the same time.

Businesses often overlook the very real cost advantages associated with this transfer of supply chain responsibility. It’s not just the cost in time saved by outsourcing order placement (the average estimation of which is circa £90 per PO raised), but also in the corresponding tasks of booking goods in, packaging disposal, parts storage and movement, delivery note processing, paying supplier invoices and so on. The costs build with every additional administrative task within the arrangement.

supply chain ownership commercial benefits

Innovation

‘Taking on’ supply chain management does not mean that the customer dilutes its relationship with key technology providers – just the opposite. The creation of a new collaborative relationship can develop, and in conjunction with these technology partners, an outsourcing provider can add a different viewpoint on the overall activity. With innovation at the heart of the relationship, the advantage to the customer could be pivotal to the achievement of cost savings and better process efficiencies for the business.

Save physical space

That’s process cost saving, now consider the physical space saving achieved when the inventory levels required to support machine builds are transferred to an outsourcing supplier. This is space that can be better utilised in supporting value added activities. Additional production space is often a high priority for a growing business.

By removing the physical inventory, stock value is minimised and working capital “cash on hand” is improved, whilst associated commercial payment terms can be managed to ensure an improved cash conversion cycle. This can be further maximised if the outsourcing partner is delivering precisely at the optimum time for production needs.

supply chain ownership save factory space

Case Study: Fullwood Packo

A huge surge in demand for the latest machines within the dairy industry means that Fullwood Packo has enjoyed particular success with its M²erlin robotic milking systems.

With significant advantages, the system has created a reduction in labour costs and increase in milk yield and volumes for its customers. However, with this increased demand comes increased manufacturing pressures and a need to reassess capacity and resources.

The company decided a more integrated machine build approach was required and that this would have to be discussed with a partner it could trust.

“The strategic outsourcing agreement marks a paradigm shift in the way we manufacture and manage our supply chains.”

 

supply chain ownership fullwood packo case study

 

To summarise

The following list is a snapshot of the very real commercial benefits associated with the transfer of a supply chain to an outsourcing partner.

  • Reduced costs associated with tactical purchasing – day to day “placing & chasing” functions within the purchasing resource can be focused on strategic activities.
  • Minimised goods in and internal logistics processes.
  • Reduction in physical space for inventory – creating additional added value spaces (e.g. additional production).
  • Improved working capital and cash conversion cycle times
  • An outsourcing partner that has the ability to offer alternative suppliers and product solutions that can provide additional technical benefits.
  • Combined customer and supplier purchasing needs, which opens-up an opportunity to leverage volume-based cost reductions.

When considering strategic outsourcing to unlock growth potential, the production and operational benefits that are often first examined should never be considered in isolation. It is important to not overlook the very tangible commercial opportunities, because they can make just as much impact to the bottom line.

 

Control & Automation | Contract Manufacturing | Strategic Outsourcing

 

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