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Importance Of Supply Chain Outsourcing

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Govindan et al. (2015) mentioned that there are many organizations to prefer outsourcing some of their business functions to a third-party organization so that they can focus on critical business operations. This third- party then take all the liabilities to accomplish the business operation. Wisner et al. (2014) however highlight that the most usual business approaches that many marketers considered for outsourcing are- marketing, sales, human resources and accounting. However, in recent times, outsourcing supply chain management to some other organization has become a trend. Experts also believe that unanticipated costs, potentiality for setbacks, poor quality work and Integration Difficulties are the risk concerning outsourcing the SCM while better focus on other business aspects, meeting customer demands, minimization of overall cost, flexibility in business and more business networks are advantageous factors in SCM outsourcing (Sodhi and Tang 2012).

The prime objective of this assessment is to compare and contrast on related peer-reviewed articles on supply- chain management outsourcing and to draw the ideas and concept discussed in those articles. The risk and advantages along with their conclusion for their research identified by these scholars will also be illustrated.


Outsourcing life-cycle

In the article “Outsourcing within a Supply Chain Management Framework”, Hila and Dumitrascu (2014) describes that SCM outsourcing resembles the buyer-seller relationship. In this peer journal, it is mentioned that the outsourcing process should be implemented by following a systematic outsourcing life cycle that comprises of 7 steps- strategic assessment, needs analysis, Supplier assessment, contract management, project initiation, relationship management and continuance of the partnership.

Figure 1: Outsourcing life-cycle

(Source: Hila and Dumitrascu2014)

The research scholar also highlights that the advantage of supply chain outsourcing is greater business flexibility, low investment risk, improved cash flow and low labor costs. It is also mentioned in this research paper that outsourcing is majorly done by forming long-term relationships with competent companies, who can effectively accomplish their business’s objectives. Factors like freeing resources for other purposes, infusion of cash, lack of internal resources, a better capability of external supplier and the desire to focus more tightly on core business influence marketers to outsource their business operations. Waters and Rinsler (2014) also depicted that risk of choosing inefficient suppliers, longer lead times, leakage of intellectual property and loss of control over process are some of the common disadvantages in business function outsourcing. The conclusion drawn here is that whether or not a marketer intends to outsource their business operations, in order to attain high quality, collaboration between buyer and seller and sharing rewards and commitment ensures the improvement in costs, quality, delivery, time and performance.


Relationship of Supply Chain Management and Outsourcing

Moreover in the research journal “Relationship between Supply Chain Management and Outsourcing” Mazlan and Ali (2006) explains that in order to enhance organizational performance, Supply Chain Management (SCM) and Outsourcing are considered as important tools. The research scholar here mentioned that outsourcing the supply chain management procedures provide competitive advantage to an organization as the third- party on which SCM is outsourced are expertise in this field and the logistics process of the business will be handled hassle-free. Sodhi and Tang (2012) furthermore suggests that these outsources companies comprises of two parties- upstream parties and the downstream parties. Upstream parties signify an organization’s functions, processes and network of suppliers; on the other hand, distribution channels and processes signifies the downstream functions. Mazlan and Ali (2006) furthermore highlighted that in outsourcing, marketers have to align their business objectives with that of their SCM third- party, so that mutual understanding can be reached. Thus, the disadvantage in SCM outsourcing is the proper execution of complex and complicated management system due to more number of associated people. Christopher (2016) moreover argues that practice of outsourcing is sustainable and businesspersons are satisfied with the overall business outcome in outsourcing their logistics procedure. The benefits in this process are to reduce costs, improve employee productivity, expand services and expertise as marketers got more time to focus on their core business. Compared to the first article, in this research paper, it is mentioned that business contacts are also enhanced in this way, as these third parties are also liable to handle the SMS functionality of more than one organization. Another different aspect in this journal articles highlighted is the overlapping aspects among three factors- people, process and technology (Mazlan and Ali 2006). The conclusion that is drawn from this research article is that outsourcing can be an element of magnitude in SCM. This can be achieved through effective collaboration with downstream and upstream parties.

Logistics outsourcing in retailing for fresh products

The third article is “Fresh product supply chain management with logistics outsourcing”, where it is mentioned that the presence of third-party logistics (3PL) provider in the supply chain has a significant impact on the business performance. One of the greatest advantages of outsourcing the SCM is that marketers can overcome the geographic separation between the production base and the target market (Cai et al. 2013). These 3PL providers handle all the transportation costs and time to deliver the final goods from the manufacturers to the end-customers and the level of freshness can be maintained. This article majorly focuses on the retail business, where customers intended to get fresh products from an organization. The risk in logistics outsourcing is the variation of transport time depending on the transportation distance (Johnson 2014). The problem arises when the time taken to deliver products to the users takes longer than the usual time and the products will not remain fresh. Thus, compare to two of the research articles, this journal highlighted the risk of quantity loss and quality loss in retail business for perishable products. Another reason for the occurrence of this adversity is lacks experience in the employees or lack of knowledge in marinating the organization’s objectives. Adversities like using cheaper items, cuts corners and improper adoption of risk factors in business also create hassle in the entire process and customer might not get their desired products on time. The conclusion that is drawn in this article is that retailers should adopt third- party supply chain associates for transferring their products to long-distance. However, motivation plays a crucial role in making their third- party service providers and thus incentive scheme should be implemented to facilitate their coordination.


Supply chain outsourcing for fresh products

The next article that is taken into consideration is “Global Supply Chains: Factors Influencing Outsourcing of Logistics Functions”. In this research article, it is mentioned that nearly all large multinational companies associated with third-party logistics providers to freight forwarders (Rao and Young 2014). Johnson (2014) also highlight that the factors that drive the tendency to get associated with a third-party logistics provider are- achievement of risk liability and control, formulation of market relationships, attaining centrality of the logistics functions to core competency and operating cost/service tradeoffs. In the context of the risk that is associated with this SCM provider’s are- product complexity, process complexity and Network complexity (Rao and Young 2014). Process Complexity resembles the time sensitivity of transactions within the supply chain, order cycle times and manufacturing cycle times for customer orders and components and products respectively. Network complexity furthermore signifies geographic dispersion and intensiveness of transactions. Brandenburg et al. (2014) moreover stated the major reasons for this complexity are- selecting an effective number of distribution trading partners, appropriate selection of the region where the logistics process needs to be performed, maintenance of stock-keeping unit (SKU) and origin/destination (OD) pair permutations. In this case, the problem arises due to nature of the traffic dispersion that is when all the firm’s products are distributed among the major regions of the world. Moreover, Brandenburg et al. (2014) also portrays that unanticipated cost, potential for setbacks, maintaining quality of products and integration difficulties are some risk in outsourcing the supply chain operation to others. In context of unanticipated costs, it can be said there are always hidden fees that a third party does not reveal like increased shipping costs and associated taxes on cost projections. These fluctuations results in conflicts and poor communication and less priority. Moreover, problem in unrealistic timelines throughout distribution also hosts many problems that can lead to revenue loss and glitches in the supply chain process. Lastly, in the context of the product complexity, it is important to analyze the environmental information like temperature and humidity for transportation, storage and handling. These details are assessed effectively by the third- party according to the sensitivity of the business products of the host company.


Warehouse, IT and Customs Brokerage Outsourcings

Moreover, in “Role of logistics outsourcing on supply chain strategy and management” the prime topic for discussion is to analyze the effect of logistics outsourcing. In this article, (Hilletofth and Hilmola 2010) mentioned that there are several types of 3PL providers- standard 3pl providers, service developers, customer developers and customer adapters. The advantages of this outsourcing are the ease of order intake, procurement, inventory management, fleet management, warehousing, and distribution of the products and the goods. Hilletofth and Hilmola (2010) moreover depict that the underlying disadvantage in SCM outsourcing is the lack of needed competency and resources for proper logistics distribution among the third parties. Wu et al. (2013) also affirm that large organizations on performing other business operations have to put less effort on their distribution process as 3PL providers do the same for the concerned organization. The conclusion drawn from this research article is that warehousing and customs brokerage outsourcing are two major aspects of supply chain outsourcing (Hilletofth and Hilmola 2010). However, in recent times, the IT applications of logistics information system are mostly valued as everything in the business is automatic but customs brokerage outsourcings are considered as the core strength of the logistics. The only difference that is found in the local and international supply chain outsourcing is that in the former case, the customs brokerage outsourcing is mostly preferred; while, in the latter case, the IT outsourcing is preferable.

Importance of supply chain outsourcing

In the research report “Supply chain outsourcing: More choices, tougher decisions”, Byrne (2006) highlight some of the major business issues due to which marketers prefers 3PL providers to formulating their own supply chain department. These issues are- organization specific issues like ineffective supply chain leadership, improper knowledge in boom and bust cycles and lack of skills in information technology as a competitive differentiator long with the inability to implement long-lasting changes. Moreover, Johnson (2014) affirms by depicting that financial issues are the major reason for which businesspeople wants to outsource their SCM process. These financial issues comprise of factors like- incapable of handling the increased cost of SC costs, proper management to free- up the investment costs and consistently missed services or availability targets (Mena et al. 2013). On the other hand, Pagell and Shevchenko (2014) argue that supply-chain specific issues are the important aspect that enforces a businessperson to hand over their distribution process to third- party. Wang et al. (2015) furthermore portray that improper monitoring of the inventories across different departments, visibility of orders in transit, lack of knowledge in global integration of supply chain processes and inconsistency in adopting best SCM practices among the organization’s different departments along with the purchasing of effective supply chain resources. However, all the three factors- organization specific issues, financial issues and supply chain issues can be overcome by selecting efficient 3PL providers and resembles the benefits of outsourcing the supply chain function to them (Stadtler 2015). Byrne (2006) moreover, highlighted in the article that key decision criteria for frequently outsourced supply chain functions are- transportation, warehousing, network planning and procurement. E-commerce companies also outsource their SCM for better and fast distribution services. Wang et al. (2015) on the other hand mentioned that an organization have to take initiatives for helping their clients to perform higher by collaboratively managing the strategies, processes, technologies and synergies so that both the company’s and its outsourced supplier’s business objectives can be aligned. The disadvantages in this context are that distribution is an important function and the company has to rely for their products delivery on them. Arise of conflicts and poor management of the customer handling may results in poor brand recognition due to inefficient 3PL providers. In addition to that, Mena et al. (2013) depicts that outsourcing results in losing control over the processes due to which delay in delivery and ineffective customer satisfaction occurs. Moreover, proper integration with the supply chain services provider cannot be attained easily as an organization intends to associate with organization who have expertise in every field of logistics and this become tough for 3PL to fulfil. 



Thus, it can be concluded that the major benefits that can be attained by outsourcing the business performance are to coordinate the core business operations efficiently. This assessment focuses on the supply chain management outsourcing that is to handle over the distribution approaches of the business products and services on a third party enterprises or providers. This process ensures that the final goods will be delivered to the end-users without any delay. A total of six research articles are taken into consideration and the common facts that were found are that businesspeople outsource their supply chain procedure to 3PL providers in order to get more business contact, overcoming infusion of cash, lack of internal resources and better capability of external supplier. These factors ensure attainment of high quality and effective collaboration between buyer and seller. Moreover, it is also found that outsources companies comprises of upstream parties and the downstream parties that are liable for handling the network of suppliers and distribution channels. The major disadvantage that is found by analysis all the research articles are that businesspeople face difficulty in executing complex and complicated management system and in the identification of the variation of transport time depending on the transportation distance. Thus, the major topic of discussion that can draw is to find out the impact of supply chain outsourcing on effective business performance that can be addressed in future.



Brandenburg, M., Govindan, K., Sarkis, J. and Seuring, S., 2014. Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), pp.299-312.

Byrne, P.M., 2006. Supply chain outsourcing: more choices, tougher decisions. Logistics Management, 45(5), pp.24-26.

Cai, X., Chen, J., Xiao, Y., Xu, X. and Yu, G., 2013. Fresh-product supply chain management with logistics outsourcing. Omega, 41(4), pp.752-765.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Govindan, K., Soleimani, H. and Kannan, D., 2015. Reverse logistics and closed-loop supply chain: A comprehensive review to explore the future. European Journal of Operational Research, 240(3), pp.603-626.

Hila, C.M. and Dumitrascu, O., 2014. Outsourcing Within A Supply Chain Management Framework. In Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE (Vol. 8, No. 1, pp. 328-336).Faculty of Management, Academy of Economic Studies, Bucharest, Romania.

Hilletofth, P. and Hilmola, O.P., 2010. Role of logistics outsourcing on supply chain strategy and management: survey findings from Northern Europe. Strategic Outsourcing: An International Journal, 3(1), pp.46-61.

Johnson, P.F., 2014. Purchasing and supply management.McGraw-Hill Higher Education.

Mazlan, R. and Ali, K.N., 2006. Relationship between supply chain management and outsourcing.In Conférence I CCO.

Mena, C., Humphries, A. and Choi, T.Y., 2013. Toward a theory of multi?tier supply chain management. Journal of Supply Chain Management, 49(2), pp.58-77.

Pagell, M. and Shevchenko, A., 2014.Why research in sustainable supply chain management should have no future. Journal of supply chain management, 50(1), pp.44-55.

Rao, K. and Young, R.R., 2014. Global supply chains: factors influencing outsourcing of logistics functions. International Journal of Physical Distribution & Logistics Management, 24(6), pp.11-19.

Sodhi, M.S. and Tang, C.S., 2012. Strategic approaches for mitigating supply chain risks. Managing Supply Chain Risk, pp.95-108.

Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Wang, Y., Wallace, S.W., Shen, B. and Choi, T.M., 2015. Service supply chain management: A review of operational models. European Journal of Operational Research, 247(3), pp.685-698.

Waters, D. and Rinsler, S., 2014. Global logistics: New directions in supply chain management. Kogan Page Publishers.

Wisner, J.D., Tan, K.C. and Leong, G.K., 2014. Principles of supply chain management: A balanced approach. Cengage Learning.

Wu, D., Wu, D.D., Zhang, Y. and Olson, D.L., 2013. Supply chain outsourcing risk using an integrated stochastic-fuzzy optimization approach. Information Sciences, 235, pp.242-258.


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