Canadian SMEs should outsource to offset risk

KPMG reports suggests Canadian SMEs will broaden supplier relationships, but reluctant to explore supply chain outsourcing

April 4, 2011   by Matt Powell

TORONTO—Cost minimization is the biggest concern for Canadian companies, but more plan to deepen and broaden relationships with suppliers to reduce risk and minimize cost, a KPMG report suggests.

Of 81 Canadian respondents, 56 per cent said their company would enter into more contracts with suppliers.

The report also suggests, however, that foreign respondents were more likely to explore risks of sourcing in emerging markets like China and India.

But outsourcing can help small and medium-businesses (SME) offset supply chain risk and improve their footprint on the Canadian economy—something SMEs have struggled to achieve in the past.

“The best way to offset supply chain risk is to have a supply chain strategy,” says Mike Croza, managing partner at Supply Chain Alliance. “But, 90 per cent of companies don’t have a supply chain strategy.”

If a company does have a supply chain strategy, it must tie that strategy into its business objectives and figure out how to leverage that strategy, says Croza.

“You will never be able to design a supply chain to meet 100 per cent capacity,” he says. “Build your supply chain to 70 or 80 per cent and master that.”

He says a focus on core competencies is key to identifying ways to implement an efficient supply chain management strategy.

“The supply chain is an offset to what your business strategy is,” he says. “It’s not a driver, it’s an enabler.”

Brian Smith, director of supply chain management services at KPMG Canada, says more companies need to outsource production efforts because it may not be a core competency. For example, some electronics companies may outsource parts production because their in-house activities may focus more on product development and marketing.

“If manufacturing isn’t a core competency of a company’s supply chain strategy, outsourcing production can improve a company’s efficiency and reduce overall costs,” he says.

He says there has been a trend to outsource to countries where labour costs are lower, like India and China, but Canadian companies have lacked capitalizing on those kinds of opportunities because of risk aversion strategies.

For SMEs, outsourcing production could be key to better supply chain management because there may not be enough staff to handle production efforts while investment into production equipment might not be as cost effective as outsourcing production to one or more suppliers, he says.

“Especially in the far east, it might be more practical to source multiple suppliers instead of putting all your eggs in one basket,” he says. “If you source different product lines from different suppliers, it makes resolution easier if one has a fall back”.

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