There are both advantages and disadvantages to outsourcing any kind of work and these need to be weighed up carefully before a decision is made to bring in external support. As with anything else, the decision to outsource will be completely dependent upon the specific circumstances of the organisation and the work that needs to be done, which could be anything from data processing through to transportation. Some organisations even outsource the entire supply chain.
Some of the disadvantages of outsourcing include making quality control more difficult, as well as the complexities and risk involved with liability for any mistakes made by a third party that can also have wider implications for the organisation’s reputation. However, with careful supplier selection, contract management and regular supplier reviews, these concerns can be alleviated, leaving some strong benefits.
As we have seen in our recent work in Nigeria, outsourcing last mile distribution can be highly beneficial in some contexts. Niger State, for example, has a complex health supply chain due to the involvement of multiple parties, an enormous landmass, meaning that some health facilities are located at great distances from the central store, and many areas also do not have accessible roads, and/or pose security challenges when transporting valuable commodities like medicines. For these reasons, ensuring medicine availability is a substantial challenge for everyone involved. Outsourcing distribution has played an important role in improving health outcomes in Niger State.
There are 5 significant ways that outsourcing could help African supply chains:
Supply chain management is a broad area and requires an array of expertise and skills to ensure sustainable success. By outsourcing an area, you can quickly gain missing capabilities and fill any knowledge gaps that can provide a competitive advantage without the need for extensive hiring and staff training programmes.
When hiring an external company, the selection process should be rigorous to ensure that you are getting the best specialist expertise in the area you are seeking. Outsourcing provides an opportunity to select a supplier that has focused knowledge and experience in a specific area. They can bring a level of understanding from different sectors and organisations that you could not easily gain in-house.
Believe it or not, outsourcing can also provide cost savings. For example, an external company may have specialist equipment or facilities that would otherwise need to be purchased or hired. Hiring a whole company also brings with it a team of people with a range of specialised experience, comparatively, matching this in-house would involve recruitment expenses in addition to competitive salaries and other staff incentives, as well as taxes and other legal employment obligations. Additionally, in order to match the specialist knowledge of an external company who regularly conduct the particular type of work with other companies and in other contexts, you would also need to keep your staff highly trained in the latest best practice. For an external company this is their competitive advantage, so it is their prerogative to offer you highly skilled staff, which can ultimately be more cost effective for your organisation in the long run than needing to coordinate or pay for regular training programmes and upskilling.
In the Niger State example, the average cost of delivering commodities per health facility through the outsourced company was NGN 49,097.59, which is just ~11% of the value of commodities.
Increased Customer Satisfaction
An external company who are managed well are incentivised to provide you with an optimal service. Any problems should be regularly addressed and resolved to your satisfaction, so that they can continue working with you. Ultimately this is to the benefit of everyone – especially your customers. By outsourcing distribution to the last mile to a third-party logistics provider, Niger State saw a large increase in customer satisfaction. Health workers no longer needed to travel long distances to collect commodities, which also freed up their time to deliver a better healthcare service.
The End Results
The goal of any health supply chain is to ensure medicines are available and accessible to those who need them – and ultimately to improve health outcomes within the countries in which they operate. In Niger State, essential medicine availability increased from 33% to 65% after last mile distribution was outsourced. The results often speak for themselves.
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