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The outsource economy

Posted: 08/24/2016 - 20:07

Globalisation has sparked a shift in production to third parties. Savvy manufacturers are tapping digital networks to maximise opportunities and minimise 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 twelve 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 organisation (CMO) 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 question that manufacturers face in moving to the model? Will the CMOs have the manufacturing flexibility we need to move schedules around, or will we have to buffer more raw material sand 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 requirement, 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 24X7 basis.

Best-laid plans

Globalisation 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 shutdown, 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.

Globalisation is opening significant opportunities for manufacturers. And outsourcing is among the fastest, most efficient ways to capitalise 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.

About The Author

Lorne Jones's picture

Lorne Jones is Director, Supply Chain Solutions for SAP Ariba. In this role, he is responsible for SAP Ariba’s Supply Chain Field Operations in North America. Lorne has held executive leadership roles in product management, and sales and marketing at SAP and other supply chain solutions providers like IBM and Oracle. Prior to roles in technology, he ran third-party logistic operations across the northeastern United states for companies like Bose, TJX, LL Bean and HP. Lorne holds a Master’s degree in finance from Northeastern University and undergraduate degree in business from Syracuse University. Lorne is a published author and a licensed customs broker.