Global Logistics and Supply Chain Strategies - April 2008 - (Page 52)

Challenge Yourself to Outsource More Gregory Polcer, who after 20 years with Unilever recently retired as vice president of supply chain, is a strong advocate for outsourcing. “Unless you are a supply chain company, every company should at least challenge itself to understand the value of outsourcing everything possible,” he says. Logistics tasks such as warehousing and transportation are commonly handed off to 3PLs, but he believes that companies should look for other supply chain outsourcing opportunities such as manufacturing and procurement. For example, the bidding process for indirect and even direct purchases is ripe for outsourcing. “Many outside procurement services have software and processes that do purchasing better than most manufacturers or retailers can do for themselves for certain products,” he says. “Take advantage of them.” By working with a procurement provider for all types of materials, companies can take advantage of economies of scale, supplier relationships and aggregation opportunities that can result in better prices, availability or quality. “Which procurement activities are outsourced depends on what is strategic and what is routine,” says Polcer. For example, in the case of manufacturing, competing consumer product companies today outsource production to the same or similar factories in China to lower costs, but they all are careful to maintain their unique brand identity. “Companies are always accountable for delivering the promises that their brand makes, so they must maintain control over those processes that provide the quality and innovation that their customers expect,” he says. According to Polcer, the key for any company is understanding where the value exists in their product, so the company can protect that value and innovate to improve it. “The reality is that most competing products are more similar than they are different, so why not take advantage of the scale that outsourced manufacturing provides?” asks Polcer. “You just have to control the points that make your product and your brand different.” According to Polcer, a largely untapped area for outsourcing is data collection and transfer because few supply chains do a good job of handling end-to-end data. Information should flow from the point of sale back through to suppliers, but that rarely happens. Because of the way most supply chains are siloed, data is not shared, let alone transformed into actionable information. Only a handful of successful retailers and CPG companies are creatively turning supply chain data into valuable information, and they tend to keep this transformation process in-house. “The creativity that allows data to become useful information is the proprietary task,” says Polcer. “Collecting and transmitting the data is not. There is an opportunity for outsourced providers to take on more of the technical pieces of the data transactions and sell that as a service.” The 3PLs’ activities connect them to many links in the supply chain, and Polcer thinks they should take ownership of the data that they are able to collect. By capturing and sharing true demand signals throughout the supply chain, 3PLs and other providers can greatly increase their value to customers. According to Polcer, there are several types of activities that should not be outsourced. Supply chain processes that provide true competitive advantage should be kept in-house. For example, he points to Dell’s ability to custom-build each computer ordered differentiates it from its competitors, and that is kept in-house. “If you have figured out how to do something better then anyone else, and that activity provides true competitive advantage, don’t outsource it,” he says. While certain customer service activities can easily be outsourced, others cannot. Pure transactional customer interfaces such as billing can almost always be outsourced, but if there is a strategic relationship involved, such as a merchandising to end-use customers in the case of retail, that activity is too important to hand off to a third-party. Other than these few exceptions, Polcer believes companies should challenge themselves to become more virtual. They should strive to be knowledge and information hubs and allow outsourced providers to perform most physical tasks. This transformation, however, has been very slow to take place. Businesses simply do not look critically enough at outsourcing opportunities, according to Polcer. In many cases, companies have already invested in factories, warehousing and other assets. They also have long-serving employees who they feel obligated to maintain. “We are burdened with the past, so outsourcing certain things is viewed as economically unfeasible,” says Polcer. “Companies have to constantly challenge these notions because the virtual supply chain is not only possible, but it is going to happen.” As supply chains become supply networks, Polcer believes there will be increasing pressure to leverage the capabilities of outside providers. The low-hanging fruit, including logistics and purchasing, is at the ends of the supply chain, but other opportunities abound. “Success is about constant innovation,” says Polcer. “Companies need to be the knowledge transfer point. They need to own the information, but there is little reason to own every piece of the supply chain.” Greg Polcer plans to use his many years of experience in finance, supply chain and general management at Unilever, Playtex and J.C.Penney to advise other organizations, operate another large supply chain or manage an entire mid-market business. He can be reached at gfpolcer@gmail.com 52 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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