21 Aug Outsourcing Ownership for Optimization
Many third-party logistics (3PL) companies promise to optimize the supply chain through minor tweaks to established workflows. And while most supply chains have plenty of room for improvement, fine-tuning optimizations are not enough these days to provide true competitive advantage.
According to 2016 research by APICS, capacity planning and resource availability are two of the biggest challenges facing modern supply chains; these concepts are closely tied with inventory workflows and process standardization as a whole. But given that these problems have yet to be solved despite the wealth of solutions currently on the market, something bigger is clearly wrong with traditional supply chain logistics.
Instead of spending excessive time, energy, and money working to make marginal improvements to inefficient systems of supply chain logistics, supply chain operators need to look beyond the established practice and consider services that look at efficiency in a different way. One powerful example of this is called Inventory On Demand (IOD)—a system of third-party goods ownership that reframes how executives view supply chain optimization.
What Is IOD?
IOD rethinks traditional supply chain logistics by letting business owners outsource both ownership and logistics of their inventory. IOD providers own inventory throughout each leg of the supply chain, from initial shipping at the factory floor all the way to the final point of consumption. This system changes the way supply chain operators handle their inventory—and creates substantial benefits to those who apply it.
Essentially, the transfer of responsibility that IOD provides lets manufacturers purchase goods and resell them on a same-day basis. This results in better managed inventory flows, improved supply chain visibility, and improved company balance sheets.
The Power of Third-Party Ownership
Transferring control of inventory to a third-party confers numerous benefits to businesses with sluggish supply chains
- Inventory control: IOD allows businesses to buy and resell inventory on a same-day basis. This level of control reduces the risk that manufacturers are exposed to and allows for efficient inventory production across all levels of demand. Outsourcing of ownership also enables regional distribution strategies, as businesses free themselves of the risk of overproduction (causing excessive inventory on the balance sheet) or underproduction (necessitating expedited shipping costs to meet demand).
- Optimized distribution: It’s no secret that globalized supply chains are difficult to coordinate. IOD allows a provider to take ownership of goods at the factory floor and orchestrate their flow throughout each step of the supply chain. This system of accountability guarantees that shipments are consolidated efficiently and shipped along the most cost-effective distribution routes.
- Reduced liability: Transferring ownership of inventory to a third-party means that the burden of ownership is taken off the shoulders of supply chain operators and placed in the hands of the provider. IOD lets manufacturers reduce their assets under management (and liability overall) without adding to inventory costs.
- Fewer costs: IOD is synonymous with shipment efficiency. When inventory is controlled, the costs associated with production-forecast errors are eliminated. When optimized distribution channels are created, the costs of transportation and warehousing are reduced. And when 3PLs monitor the consolidation and flow of goods, there is a built-in safety net for catching shipping mistakes that reduces the financial impact of supply chain error.
- Reporting accuracy: IOD offers a method of inventory management that flips the script on traditional balance sheet reporting. With IOD, inventory is kept off the balance sheet until it has been sold. This reduces the amount of unsold inventory that must be accounted for during reporting periods.
Who’s Managing Your Inventory?
The benefits of letting outsourced inventory providers take ownership of goods are drastic and represent a fundamental shift in supply chain strategy. IOD is not a system of supply chain optimization that attempts to compete in the oversaturated optimization market. Rather, it steps back and challenges the preconceived notions of what “optimization” truly means.
True supply chain optimization means much more than just polishing the gears on a broken and outdated system. It involves supply chain executives examining their business models, recognizing areas for improvement, and being willing to embrace new technologies that accelerate business growth beyond what was once thought possible.
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