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After two years of global shortages, businesses are now facing a lot of excess inventory. This is lowering their profitability and making it harder for them to keep up with their expenses. As a result, their stock prices are plummeting.
Many businesses, faced with shortages and disruptions, began to stock up on products and raw materials. This was done in the hopes of ensuring a sufficient supply in the event of any future issues. For a long time, businesses have been striving to improve their supply chains by implementing just-in-time inventory, which eliminates the need to store large quantities of inventory.
However, this is changing now. Companies are starting to see that it's better to hold on to some extra inventory in case there are problems with getting new supplies. When companies don't do this, their stock prices go down because their profit margins are really thin.
When it comes to inventory, there are two risks that businesses face. The first is the cost of holding too much inventory in the event of a shortage. The second is the risk of not having the right products or parts at the right time to fulfill demand cycles. So, what can companies do to reduce these risks?
If your business is facing excess inventory, outsourcing your supply chain can be a great way to reduce risk and improve profitability. Here are three reasons why outsourcing your supply chain is a smart move:
1. Outsourcing can help you avoid stockouts and disruptions.
When businesses stock up on products and raw materials, they do so in the hopes of avoiding shortages and disruptions. However, this often backfires, as excess inventory can quickly become a liability. Having a third party can help you avoid these risks by holding some of the inventory, providing a buffer between just-in-time and just-in-case. This would provide better terms of payment than companies would get directly from suppliers. They may also prepay businesses, so the inventory expense does not impact working capital. They can even outsource all aspects of the supply chain purchase-to-pay process to third parties.
2. Outsourcing can improve cash flow.
Outsourcing your supply chain shifts the financial risk of purchasing and maintaining inventory to a third party, freeing up working capital that was previously tied up with inventories. It reduces risk throughout the entire supply chain by lowering cash flow tension between key suppliers and distribution centers while also increasing investment in R&D and marketing to drive growth.
3. Outsourcing can help you focus on your core competencies.
Outsourcing your supply chain can allow you to focus on your core competencies, rather than spending time and resources on managing your supply chain. This can lead to improved efficiency and profitability.
Overall, outsourcing your supply chain is a smart move for any business that is facing excess inventory. By outsourcing, you can avoid stockouts and disruptions, improve cash flow, and focus on your core competencies. These benefits will help improve your bottom line and make your business more successful.