Global Logistics and Supply Chain Strategies - April 2008 - (Page 48)

Do You Outsource a Little, or a Lot? Just One Time, or Is It a Continuing Process? BY THOMAS FOSTER Dabbling in outsourcing may save a few dollars in the short term, but to make transformational improvements to a supply chain, companies need to make a long-term commitment to weaving outsourcing into the fabric of the business. O utsourcing is a mature practice in the supply chain world. To some degree, most companies outsource for manufacturing, procurement, logistics or information technology, or at least they have tried. Some companies outsource a great deal of these activities, while others—sometimes in the same industry—outsource very little. So why the differences in approach? “Outsourcing can be a powerful, transformational strategy that continuously lowers cost and improves operations,” says Robin Shahani, who heads the supply chain practice for Equaterra, a Houston, Tex.based consulting firm specializing in business process improvement and outsourcing governance. Equaterra clients include such consumer products companies as Adidas, Best Buy, Procter & Gamble and Unilever. To gain these long-term benefits, however, companies have to make long-term com- mitments and invest in a strategic process. “Not too many companies have top managements that are willing to devote the time, resources and money to make outsourcing a transformational process,” says Shahani, “so it is not surprising that outsourcing is not enthusiastically embraced by these firms.” In too many cases, companies look to outsourcing as a quick way to reduce operational costs. They are simply taking a piece of their supply chain and finding a provider that will do it cheaper. “When companies think about this approach, they are often thinking about offshore labor arbitrage,” says Shahani. “It is not a long-term winning strategy because it produces only one-time benefits. A smart CFO would much prefer to reduce operating cost over the long run, not just once on the budget.” He says companies take this narrow view for a variety of reasons, and some are more justifiable than others. If may be that the supply chain is very fragmented, so there is no clean way to recognize cost savings across functions and processes. One-time improvement opportunities may seem to be the limit. Another common reason for cost-driven outsourcing is that a company may simply have had very poor results performing certain activities in-house. They outsource a function just to get it out of their hands. The most common and least defensible reason, however, is that companies view too many of their activities as core functions within their supply chain. They are convinced that their supply chain is so unique that only their own people can properly perform all of the activities. “In every instance we have seen, this perception has been wrong,” says Shahani. “Whether it is logistics, procurement, manufacturing or some other activity, all supply chains include components that can and 48 APRIL 2008

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Global Logistics and Supply Chain Strategies - April 2008 Contents Editorial GL & SCS Exclusive Fast Forward Up Front Cover Story: Continuing to Add Ever More to Their Offerings, 3PLs Are - At Your Service Over the Long Haul Opinion: Freight Audit Bill Can't Show All Mistakes that Hurt the Bottom Line Opinion: The ‘Good-Freight’ and ‘Bad-Freight’ Trucking Customers Industry Voices

Global Logistics and Supply Chain Strategies - April 2008

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