Outsourcing is an idea that's hard to resist. Just search the world for the right supply or production partners, and you have the chance to bring down costs and increase your competitiveness in hard-fought markets.

But manufacturers that embark on this approach often have a devilish time working out the details of operating in multi-tier, global supply networks. A core challenge is inventory planning and management. Clear visibility into inventory levels at all your various supply network participants is essential if you expect to wring out the hoped-for economic benefits of outsourcing and maintain the reputation for quality and reliability that you have spent years cultivating.

"Many companies initially were looking at [outsourced manufacturing] to lower costs. The more mature customers are revisiting that and understanding that you've got to look at the quality issue and the cycle time issue as well," says Colin Masson, research director for manufacturing operations at AMR Research.

In fact, recent research indicates that manufacturers are coping with the inventory management challenges of global, multi-tier supply chains with only mixed results. According to a survey by Industry Directions, 73% of manufacturers say they commonly find themselves expediting products. Forty percent of that group note that the practice is on the rise in their operations. Similarly, 83% describe overstocks as common. Industry Directions also says most survey participants consider business forecasting to be an ongoing problem.

However, manufacturers can overcome these challenges by reducing variability, optimizing inventory, and establishing a reliable flow of information across the supply chain, experts say. A key to establishing that information flow is to make sure the interests of your supply network partners are aligned. Also, technology such as shared, online inventory planning portals can help you keep tabs on inventories as you outsource.

Inventory Challenges

Inventory inefficiencies often translate into overstocks and resulting carrying costs. In addition, inaccurate inventory projections in multi-tier supply chains hurt cycle times.

"When people first outsourced, they thought, 'We don't have to own all these plants; we're going to save a lot of money,' " says Bill McBeath, chief research officer at ChainLink Research, Inc. "But they didn't really think about the consequences — that when a plant goes down, it's their stuff that's not being built."

The results can be missed shipments, strained relations with customers, and lost opportunities.

Inventory levels and production schedules aren't the only things that can go wrong with multi-tier, outsourced business models, McBeath adds. Transportation takes on new importance because delays anywhere in the network can thwart even the most carefully crafted inventory forecasts.