Sitting inventory in warehouses is not just a massive drain of resources but also the biggest fear for any retailer. However, overseeing supply chain management is highly demanding. You may be left with little time to focus on strategic priorities. This is where outsourcing inventory management can seem like a viable alternative. However, this option may do you more harm than good. Let us consider some of the risks involved in outsourcing inventory management.
Risks In Outsourcing Inventory Management
1. Complete Reliance On The Vendor
Warehousing and distribution may not necessarily be core competencies of your business. However, these activities are vital for any retailer. While outsourcing your inventory management, you tend to place your belief in your vendors.
Unfortunately, complete reliance on your vendor may do more harm than good:
- Unforeseen Circumstances – The uncertain nature of work in this sector leaves endless possibilities of risks which require you to be in control at all times. Any minor lack of communication can lead to delays or mishaps. There’s little you can do to fix issues when you’ve outsourced inventory management. The potential for setbacks is greater if you do not partner with reliable vendors.
- Adverse Impact on Quality – Any risk adversely impacts your quality, which may not bode well for your business. Being on the back foot can be frustrating when your quality is in question.
- Customer Satisfaction at Risk – In scenarios where your vendor fails to meet customer demands on strict timelines, you risk the wrath of customers, resulting in major revenue loss.
- Access to Sales Data – When you hire a company to manage your inventory, they have complete access to your sales data, which is confidential commercial information! The cut-throat competitive world we live in calls for discretion and privacy.
The advent of eCommerce has increased stakes like never before and simplifying e-retail businesses needs magic indeed!
During these testing times, can you trust vendors with the most essential aspects of your business?
2. Massive Financial Investments
Outsourcing inventory management would require paying money for the service (obviously)! But how much you need to pay can be deceiving at first.
This leaves you competing for tighter margins, where you spend more than you can save. Leaving inventory management in the hands of a third-party service enhances the possibility of hidden fees. They can be in the form of increased shipping costs, associated taxes, etc.
When you integrate your business with a third party, you end up investing more on the transition processes which requires strong financial backing. Even after investing a fortune to smoothen operations, there is no guarantee that there will be no mishaps or delays.
The lack of a solid guarantee is quite a risk, which is why outsourcing inventory management is not always a good choice. Outsourcing makes you lose control over production costs. Often, unexpected costs creep up and leave you helpless.
3. Loss of Expertise
You tend to lose control over a fundamental component of your business, giving you very little room to take corrective measures and fix issues as they arise.
Moreover, as a retailer, inventory management is in your DNA! There’s no reason not to learn now and build your expertise.
Moreover, outsourcing inventory management leaves you with no chance to explore newer options. For example, systems today do what people did manually just a few years ago. How will you explore these options if you outsource?
Outsourcing decisions directly impact corporate strategy and core competencies. Before outsourcing your inventory management, it is important to ask yourself – Can innovation be outsourced?
If you could answer that with a yes, outsourcing inventory management may perhaps work in your favor!
Today, tools and automation make it possible to manage inventory yourself with far lesser investment in time than you would even a decade ago. If you’re looking to learn more about inventory management, this guide can help.
About the Author
Sameer Bansal is a digital marketing enthusiast with a strong affinity towards growth hacking strategies, which have helped several startups supercharge their revenues and become large enterprises. Singing is his parallel passion, which he nurtures every day by practicing each morning. It would be fair to say that Sameer is a singer by day, and a writer by night, who loves to voice his opinions about how technology is impacting the business world.