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Demand & Inventory Planning

5 Reasons to Outsource Your Supply Chain

Demand & Inventory Planning
February 24, 2021
7 min read
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Five positive business outcomes to consider if you’re thinking about outsourcing your supply chain.

Outsourcing supply chain management is an important decision for merchants looking to scale their business. Whether the decision comes from a perceived strain on internal resources or a desire to make more strategic supply chain decisions, there are definite advantages to moving to a full or partially outsourced model of supply chain management.

End-to-end supply chain management is a complex process, and even large merchants rarely have the internal resources to manage the full scope of their supply chain. Some supply chain management begins with sourcing product materials, and all supply chains end with last mile delivery and returns processing.

No matter the size of your business, outsourcing your supply chain can drive business growth. From the expertise of a procurement specialist to a data analyst, every phase of your supply chain can benefit from an expert eye to maximize margins, grow revenue, and increase customer satisfaction. Ahead are 5 reasons you should consider outsourcing your supply chain no matter the size of your business.

1. Supply Chain Outsourcing Frees Up Internal Resources

Generally speaking, business owners are driven by a passion for a product or filling a gap in an under-indexed market. Their skills tend to be in product development and positioning, and as they expand their internal teams, their early hires tend to focus on marketing and customer service.

As demand grows, supply chain management becomes increasingly more complicated and begins to pull focus away from these core competencies. Often, staff are required to work outside of their area of expertise to keep warehouses stocked and orders fulfilled on-time. And being truly strategic about inventory reorder points is more time intensive than it may seem at first glance. Ordering the right amount of inventory at the right time is a delicate balance between avoiding stockouts and backorders and eating up margins with high inventory carry costs.  Outsourcing supply chain management to a trusted vendor, such as a tech-enabled 3PL network or on demand warehousing provider allows you to re-allocate your team members to focus on key business drivers.

Children’s furniture merchant ECR4Kids operated a full-scale, traditional insourced fulfillment model. They leased and operated their own warehouses, maintaining a full staff and managing the entire supply chain with their internal team. When they branched out into ecommerce sales, they used it as an opportunity to test supply chain outsourcing with this small segment of their business. Through the test, they found that their staff was more available to focus on bringing great products to market when they no longer needed to manage forklift maintenance or warehouse staffing. The test went so well that they quickly pivoted, exiting all of their leased warehouse facilities and outsourcing supply chain management for all of their sales channels.

In addition to opening up bandwidth on their internal team, ECR4Kids also freed up $700k in working capital by shifting their business model to decrease their investment in fixed assets like warehouse space and equipment. This enabled them to increase their investments in product innovation and business development.

2. Outsourcing Creates Flexibility & Scalability in Your Supply Chain

Today’s digital-first economy provides endless opportunities for merchants to launch and scale new sales channels. However, without an equally scalable and flexible supply chain to support those sales, merchants could find themselves racking up backorders and inevitably, negative reviews. Having a supply chain that can stand up to the demands of today’s consumers is the key to managing long-term growth.

Seasonal businesses should especially prioritize supply chain flexibility. Seasonal merchants with fully insourced supply chains often have one of two options: keep overhead low year-round and strain internal resources when peak season rolls around or maintain operations to handle peak volume year-round, eroding the profitability of seasonal demand spikes. However, an outsourced fulfillment provider with flexible storage agreements allows merchants to pay for only the space they need when they need it and fully capitalize on peak season sales.

Looking for a solution for your seasonal business? Chat with one of our supply chain experts

The flexibility of outsourced supply chain management also takes the risk out of expanding into new markets or new product categories. A 3PL network, for example, will have a nationwide warehouse network in key regions to support 2-day ground shipping to key geographies. A 4PL’s flexible contract will allow you to re-route your inventory into or away from any of these markets to respond to new pockets of demand or exit less profitable markets. You will also have access to a variety of warehouses with varying capacity and capabilities, giving you the option to explore new product offerings regardless of storage or handling requirements.

Possibly the most important advantage of a flexible supply chain is the ability to serve any customer, whether B2B or B2C, with the same level of service and through a single provider. Outsourced supply chain management to a provider that can just as easily handle small parcel deliveries as LTL shipments enables a fully-integrated and highly scalable multichannel sales strategy.

3. Outsourcing Supply Chain Management Improves Service Levels

Few SMB’s have the resources to build a fully in-house supply chain management system that can meet the expectations of today’s consumers. Customers have long expected 1 to 2-day shipping on ecommerce orders, regardless of the sales channel. Outsourcing supply chain management enables merchants of all sizes to compete for the buy box on marketplaces and much more.

Advertising fast shipping guarantees early in the customer journey, as with Google Shopping’s Free & Fast shipping annotations drives top of funnel conversions by up to 9%. And later in the customer journey, fast shipping is shown to increase shopping cart conversions by up to 25%, driving more conversions than either in-cart discounts or a free gift with purchase.

In the long-term, meeting customer expectations for delivery speed results in better online reviews according to 39% of merchants surveyed. Positive online reviews lead to greater customer retention rates and higher average order values (AOV), lowering customer acquisition costs (CAC) and stretching marketing dollars further.

4. Supply Chain Outsourcing Reduces Risk

Outsourcing supply chain management lowers your investment in fixed assets and in many ways future-proofs your business. A flexible supply chain solution allows you to scale back quickly in the face of unexpected drops in demand or dramatic shifts in the market.

Additionally, the flexibility enabled by an outsourced supply chain allows you to manage sales across multiple channels and geographies. This type of multi-threaded business model decreases reliance on a single sales channel or geographic market and allows you to scale quickly with confidence.

5. Outsourcing Expands Supply Chain Capabilities

An outsourced supply chain will give you access to top-tier supply chain technology to automate many manual processes and gain new efficiencies within your business. Best-in-class supply chain technology should integrate all sales channels with fulfillment and allow near-time insights into inventory levels and order statuses across all channels and warehouse locations.

The most innovative supply chain technologies will also put your data to work for you by compiling your shopping cart, warehouse management, and transportation data into actionable reporting. Compiling this data can help you make important cost-saving and revenue-driving decisions about your supply chain, including where to store inventory, where to run targeted marketing campaigns, and when to replenish inventory.

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