The Outsource Economy: How To Mitigate Supply Chain Risk Through Supplier Collaboration

Lorne Jones

Globalization has sparked a shift in production to third parties. Savvy manufacturers are tapping digital networks to maximize opportunities and minimize risk.

Our plant across the street was shut down this year, replaced by overseas contract manufacturers. It’s the new normal, they say. As a material planner, I have more questions than answers. How do we coordinate with a contract manufacturer 12 time zones away? How do we find an entirely new supply base to feed into those plants? Sound familiar? It’s a story being told around the world as business becomes increasingly global and outsourcing more common.

A new way forward

Partnering with a contract manufacturing organization is a manufacturer’s heart transplant. The building, the people, and supplier coordination all have their own rhythm, rising and falling with the seasons and product demand. Among the chief questions that manufacturers face in moving to the model: Will the contract manufacturing organization have the manufacturing flexibility we need to move schedules around, or will we have to buffer more raw materials and and build more product to make up for more rigid schedules?

At the end of the day, manufacturing partners have their own ways of doing business. And companies must find ways to bridge the information and communication gaps that often exist within their supply base, given different time zones, languages, and regional norms. Many are turning to digital networks that enable them to collaborate with planners, schedulers, and trading partners across the entire manufacturing process – from sourcing and orders through invoice and payment – and more important, to increase the speed and efficiency of their operations and drive greater productivity and results. With digital networks, buyers and suppliers can gain clear visibility into changing requirements, communicate these changes, and plan accordingly to meet them.

Virtual handshakes

As business has become more global, so too have supply chains. And many companies are finding that vendors in the sub-tiers do not have the capabilities to support them. But how can they find new ones?

Nothing beats a handshake and a sit-down meeting where buyers and suppliers can share design specs, build trust, and develop relationships. Unfortunately, this is hard to do from 8,000 miles away. But digital networks can make it easy to find, vet, and connect with suppliers around the world and collaborate with them in a fair and transparent marketplace on a 24×7 basis.

Best-laid plans

Globalization is having an impact on planning as well. When supply bases were primarily local, manufacturers could quickly and easily gather the information needed to create accurate forecasts. All they had to do was walk across the street and pull in or push out materials as their schedules changed.

But with supply chains that now stretch around the globe and span multiple tiers, it’s not that easy. As manufacturers expand their operations to different states and countries, they can no longer run over to customer service and raid their wiring harnesses to keep the third shift running. They need to give their suppliers more time and opportunity to be responsive. Digital networks enable them do this by providing visibility into both current and future needs. For example, manufacturers can electronically share forecasts and weekly time with suppliers as well as net out demand. Their suppliers can review this information anytime, anywhere, using any device, and indicate areas that may need to be adjusted based on planned shutdowns, holidays, or other potential disruptions.

A crystal ball

Another major area of concern that comes with outsourcing is how much extra inventory might need to be added to the supply chain to offset risks inherent in the process. With outsourcing, manufacturers no longer have the luxury of physical checks and cycle counting. And this makes it difficult to get a clear picture of available inventory and how to account for shrinkage.

Whether it’s due to a busy season, unforeseen natural disasters, or business issues with certain suppliers, networks can provide insight into where supply chain disruptions could occur and deliver tools manufacturers can use to more accurately predict and mitigate their risk.

Globalization is opening significant opportunities for manufacturers. And outsourcing is among the fastest, most efficient ways to capitalize on them. Sharing production with third parties can be a daunting task. And it’s not without risk. But with the help of digital networks, companies can mitigate these risks and unlock new worlds of opportunity.

This article first appeared on Outsource Mag.

To learn more about digital networks and how to mitigate supply chain risk through supplier collaboration, download Collaborating with Direct Materials Suppliers Across Your Global Extended Supply Chain.”

Lorne Jones

About Lorne Jones

Lorne Jones is responsible for SAP Ariba’s program development for its innovation suite of products. Lorne has been in the supply chain and direct materials space for over 25 years as a practitioner and a software executive. Lorne holds master’s degree in business form Northeaster University as well as a undergraduate degree in marketing from Syracuse University.