Talking Supply Chain: Visibility and external manufacturing

Supply chain visibility remains a key initiative for many businesses, but visibility requires a partnership with suppliers and other partners within the supply chain. How do you optimize that visibility with external manufacturers? To answer that question, Sam New, director analyst with Gartner Supply Chain, joined the Talking Supply Chain podcast.

“You’ve got to realize that not only are more organizations relying on external manufacturers in increasing volumes, they’re also looking at external manufacturers for what we call adjacent value-added services,” New said. “So in addition to traditional manufacturing functions, we see a lot of external manufacturing service providers offering additional services, things like sourcing and procurement logistics [and] software solutions. Things like risk management tools and all kinds of different things. We see external manufacturing service providers evolving from traditional contract manufacturers into more of end-to-end supply chain solutions providers.”

New noted that external manufacturing can improve speed to market for new products, or allow quick expansion into new geographies. Gartner recently completed research in this area and found a shift in the reasons for engaging external manufacturing. Cost used to be the primary reason, but time to volume and entering new markets were cited by 27% and 26% of respondents, respectively. Visibility is becoming a key part of this new push, New said.

“Visibility is increasingly important because brands are relying more on external manufacturers for more and more things. But when the decision is made to outsource manufacturer activities, there’s an inherent loss of visibility we’re talking about [when] not using our own production assets. You can’t just visit the facility and look at what’s going on. And we don’t typically have employees embedded in those organizations. So there’s that loss. And then there’s also the problem of traditional contract manufacturers are notoriously opaque when it comes to their operations. There’s this additional challenge that has to be overcome. So again, external manufacturing is great [with] a lot of strategic benefits, a lot of potential upside. At the same time there is a tradeoff between accessing those capabilities and holistic visibility.”

Listen for more of New’s comments and his thoughts on how companies can succeed with external manufacturing.

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