Hans Groen discusses outsourcing as part of supply chain strategy this week. Changing market conditions are leading supply chains to establish different relationships with logistics service providers. Yet many companies see this type of outsourcing as something of a setback. "It is well established that outsourcing is no longer an 'all-or-nothing'strategy, nor is it the answer to everysupply chain problem," he says .”
Developments in recent years have forced organisations to re-evaluate their logistics strategy. As a result, logistics service providers (LSP) have the opportunity to continue to evolve in their role to achieve an optimal supply chain for organisations.
These are not just the typical shipping companies dealing withwith the physical flow of goods, but partners that manage the entire fulfilment process (not only goods but also criticalische data for the supply chain transparency) to set them up at an optimal level for shippers.
Supply chain evaluation Changing market conditions - including a reversal of the decline in inventories as a percentage of gross domestic product within (US), rising wages in low-wage countries and volatility of fuel prices - are causing shippers to shift within the supply chain. The economic downturn has added to the pressure on this . Sixty per cent of shippers indicate that the current situation is leading to a tipping point forcurrent supply chains and relationshipswith logistics service providers.Outsourcing strategic, non-core tasks is often one of the most challenging forms of outsourcing, often resulting in failure. As a result, manycompanies see this type of outsourcingas a potential organisational setback.
As with any aspect of outsourcing, it should fit within your current and future business strategy. A thorough analysis and evaluation of yoursupply chain can help determine which parts of your supply chain are suitable for outsourcing.What is clear is that outsourcing is no longer an "all-or-nothing"strategy, nor is it the answer to everysupply chain problem.Logistics managers are looking for the value of outsourcing strategic processes and trying to balance them within the organisation with their own core competences.
Drivers At eand successful outsourcing strategy wortaking into account the needs of the business of the future in terms of geographical - and customer service channels. The LSP must be able to react quickly to rapid changes in the supply chain. Furthermore, the outsource strategy involves maximising core competencies andcreating a balance between internal and outsourced activities, while remaining focused on transparency as a key performance measure money for any LSP relationship.
Veel of the Best-in-Class organisations have a strategic approach to dealing with the growing complexity of today's global supply chainsby taking full advantageof theflexibility and capabilities of outsourcing logistics processes. Seventy-twoper cent (72%) of Best-in-Class companies indicated that "the geographical reasons" isone of the main drivers for their outsourcingstrategies while48%indicated that the new requirements within the channel/customer is the decisive factor.
Challenges to success When it comesTo identify the optimal services and processes to be considered for outsourcing, companies must first map out their entire supply chain as it exists today and where it needs to be in the next three to five years. Suchmeasures are needed to deal with challenges such as technology upfront costs, data quality and integrity, and company-widesupport in building the relationship with the third party.
One of the key components of any supply chain strategy is a strong organisational structure focused on creatingrendering an environment that the company tactic can support, but also provide the flexibility to retain strategic leadership. Be able to create a mix of in-house core competenciesas part of an overall supply chain strategy, but also be able to identify areas where outsourcing makes sense.
IT Capability Gap
Studies show that there is a significant gap between shippers’ expectations regarding IT and their satisfaction with current options. Both shippers andlogistics service providers indicate that they need better information and solutions that are innovative enough to justifythe investment.
Such a gap can be a major setback in outsourcing success. One of the key factors for success in today's supply chain strategy is the ability to disclose information to all affected parts of the supply chain in a timely manner. Lack of real-time information cancreate cost overrunsand inefficienciesin a supply chain. The success of companies can be seen in its performance in achievingstandards in terms of 'On time and complete deliveries', seamless collaboration with third parties ondata exchange and real-time information and control of pipeline inventories.
When it comes to supply chain management, especially logisticsdistribution activities, Best-in-Class have followed the latest trend when it comes to solutions of their warehouse operations. Roughly 75% of Best-in-Class respondents indicated that they have currentlyimplemented an up-to-date and innovative WMS solution. In addition, Best-in-Class were able to enter into a multi-enterprise partnership, which is in line with the view that outsourcing is an enterprise-wide and strategic business strategy.
Key steps
- Define the role of supply chain management in overall business strategy;
- Understand the value of technology within internal supply chain processes;
- Supply chain outsourcing should be a core competency;
- Re-evaluate the relationship with your logistics service provider;
- Understand the value of supply chain transparency;
- Frequently evaluate the company's strategic objectives with your LSP strategies;
- Maintaining a strategic balance between internal core competence and external;
- Expanding the use of technology in collaboration with LSP;
- Use your LSP business as a strategic growth strategy.
Hans Groen - supply chain & performance management consultant
