Lessons from A&D: When Suppliers Take on an Outsourced Supply Chain Management Role

It is very easy today to “outsource” indirect procurement (though it’s not something that is necessarily by itself the right decision for companies – we’ll leave that topic for another day). But it’s a more difficult decision, no doubt, to indirectly or directly outsource parts of supply chain management to suppliers. Yet when companies turn to suppliers to provide finished parts and components, they’re doing precisely this, although they might not be hiring a partner such as a BPO to do it on their behalf. The same is also true, mind you, of the “outsourcing” that occurs when working with intermediaries and distributors in other spend areas, including logistics and MRO.

Regardless, the more important question is this: are suppliers qualified to manage a supply chain at the level a customer requires? As a recent article in the A&D sector that I came across notes, “the ability of the supplier to provide complete assemblies, subassemblies, kits, and turnkey products can improve an aerospace customer’s management control over its own manufacturing processes … Yet many suppliers, both domestic and overseas, are unable to manage the supply chain effectively, which is critical for producing turnkey parts and assemblies.”

When a supplier’s business becomes as much about managing a supply chain on your organization’s behalf as adding value to a particular set of materials – in whatever capacity – the stakes are significantly higher. Yet most sourcing processes don’t necessarily address this – even if teams require highly detailed cost breakdown models following an event. The key, of course, is not just breaking down costs, but breaking down risk elements as well, including understanding interdependencies in the supply chain and how, for example, lower level inventory decisions have ramifications that can increase by an order of magnitude risk elements further up the supply chain.

Are your suppliers set up to manage your supply chain for you (and have you indirectly or directly given them this responsibility)? And should they be?

Useful questions to ask to ponder, no doubt!

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