Sourcing Decisions and Third Party Supply Chain Management Service Providers - Schain24.Com

Sourcing Decisions and Third Party Supply Chain Management Service Providers

Sourcing is the whole set of
business processes, which is necessary to buy goods and services required by
the Supply Chain. Most important decision for a supply chain function is
whether it is feasible to outsource or perform the function in- house. When a
Supply Chain Function is outsourced, then, it is performed by a third party
Supply Chain Management Service Provider.
After checking pertinent issues
of increase
in Supply Chain surplus
and risk factors associated with involving and
engaging  a third party  , sourcing
decision is made to perform the function by a third party rather than
perform the function in-house.
Sourcing processes outlined:
Main Sourcing related processes
are Supplier scoring/ assessment, Selection of Supplier/Contract Negotiation,
Design collaborating, procurement, Sourcing planning/Analysis.
Supplier Scoring is used to
rate Supplier performance. Impact on Supply Chain surplus and total cost is the
basis of comparison between suppliers. Manufacturer and Supplier should
collaborate at the product components designing phase as 80 percent of cost of
product are determined at this stage. Now a days within cost of goods sold
there is a very big fraction are purchased components. If sourcing process is effective,
then, it improves profits for the firm and total supply chain in various ways.
Increase of Supply Chain surplus by outsourcing:
By aggregating capacity,
inventory, inbound or outbound transportation, warehousing, procurement, information,
receivables to higher level, outsourcing to a third party can provide a
sustainable growth of the surplus to the firm. Sometimes ,a growth in surplus
may also occur due to lower cost ,higher quality, specialization  or learning of the third party .A firm gains
most from outsourcing to a third party   if needs are small, uncertainty is high and
other firms are also sourcing from the same third party.
Risk of outsourcing:
Following risks need to be
evaluated to move any function to a third party. Due to outsource to a third party,
the process is broken and harder to control. The process should be in control
before outsourcing to a third party and after doing good cost benefit analysis
outsourcing decision should be made. The effort required for collaboration with
different entities performing supply chain tasks may be overwhelming and
costly. A firm may lose supplier contact due to losing direct contact with
customer bases. A firm may like to keep a supply chain function in-house if
outsourcing increases the third party power significantly .Firms often like to
keep the supply chain function in-house, if there is a chance to leakage of
intellectual property or other sensitive information, especially when the third
party also serves the competitors also. Contracts should be effective or it may
be reason for loss of profit for outsourcing firm or the third party.
3PL and 4PL Providers:
A 3PL(Third Party Logistics
Provider) performs some of the product, information and funds flow related
functions in favor of a firm, which the firm itself also can do. They generally
perform transportation, warehousing and information technology related
functions. Sometimes they go beyond logistical needs, and include value added
services to integrate various Supply Chain functions. It is in that case called
third party Supply Chain Management or 3PSCM provider.  Third party logistics providers include
freight forwarder, courier service and other companies who integrate
subcontracted logistic and transpiration functions.
Businesses and Logistic Service Providers

Most of the 3PLs started their
business focusing on a single function, later they expanded their range of services.
As for example, UPS started as a small package career and Schneider started as
a Truckload career. Since late 1990s the trend of outsourcing a greater range
of supply chain function has been growing. With more globalization of business
customers are looking for players, who can manage virtually all aspects of
their Supply Chain, which is being called 4PL.A 4PL is an integrator ,who
assembles the supply chain resources, capability and technical areas of its own
and other organization to design, build and run comprehensive supply chain
solutions. 4PLs are helping supply chains with greater visibility and coordination.
As for example Keene and Nagel worked for Nortel to complete their noncore
logistic functions. A 4PL sometimes effectively aggregates demands from
customers and capacity of logistics providers.

For better understanding of the
related terminology, we can say that 1PLs are the shippers or the
consignee,2PLs are the actual carriers such as Maersk,MSC etc. and 4PLs are
consulting firms, e.g,Accenture,Deloitte etc.
Being engaged with a 3PL or 4PL
helps firms to provide a complete production and distribution service to the customer,
which are outsourced to increase supply chain surplus and to avoid risk

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