Executive Briefings

Outsourcing Decisions: Use Strategic Thinking With Caution

Outsourcing can be either a source of competitive differentiation--or a recipe for disaster. Much of the conversation at a recent NASSTRAC seminar in northern California reflected a universal approach that has worked for shippers: focus on core competencies and outsource the rest. Last mile logistics is a good candidate for outsourcing.

Firms as diverse as IBM, 3M, Dell, and General Motors are vertically disaggregating at an often-blinding pace; delegating many of the activities they once performed in-house to a network of specialist suppliers. However, although outsourcing significant portions of product development and manufacturing may provide a competitive advantage, coordinating the outsourced pieces may indeed create new challenges in product development and procurement along the supply chain interface.

Many shippers take great care in focusing on their core competencies, and then select the areas in which they have a "competency gap." These are areas that are critical in delivering on their value proposition yet are not a core competency. From a transportation and logistics perspective, these potentially outsourced activities can include export and import execution, transportation management, shipment visibility, merge-in-transit programs, modal optimization, landed cost optimization, "final mile" deliveries, and vendor managed inventory. In operations, these activities can include global workforce management, vendor-managed inventory, and service parts management. In fact, several shippers at the seminar discussed that they now even outsource manufacturing--a function that many traditionally consider a core competency.

In whatever you decide to outsource, be customer-driven in your decisions. Take Lenovo, for example. As a leading manufacturer of PC laptops, Lenovo is focused on what customers want (typical of most companies these days): Best price, best quality, and best service. Like many other shippers, Lenovo focuses on five fundamental areas, which help them to deliver on these expectations:

1. Speed to market and speed of deployment.
2. Value, which is defined by the benefit less the cost.
3. Innovation by creating benefit through differentiation.
4. Quality, which is all about execution. This is defined by the need to get it right, on time, every time!
5. Service, through which people make the difference.
http://www.nasstrac.org

Outsourcing can be either a source of competitive differentiation--or a recipe for disaster. Much of the conversation at a recent NASSTRAC seminar in northern California reflected a universal approach that has worked for shippers: focus on core competencies and outsource the rest. Last mile logistics is a good candidate for outsourcing.

Firms as diverse as IBM, 3M, Dell, and General Motors are vertically disaggregating at an often-blinding pace; delegating many of the activities they once performed in-house to a network of specialist suppliers. However, although outsourcing significant portions of product development and manufacturing may provide a competitive advantage, coordinating the outsourced pieces may indeed create new challenges in product development and procurement along the supply chain interface.

Many shippers take great care in focusing on their core competencies, and then select the areas in which they have a "competency gap." These are areas that are critical in delivering on their value proposition yet are not a core competency. From a transportation and logistics perspective, these potentially outsourced activities can include export and import execution, transportation management, shipment visibility, merge-in-transit programs, modal optimization, landed cost optimization, "final mile" deliveries, and vendor managed inventory. In operations, these activities can include global workforce management, vendor-managed inventory, and service parts management. In fact, several shippers at the seminar discussed that they now even outsource manufacturing--a function that many traditionally consider a core competency.

In whatever you decide to outsource, be customer-driven in your decisions. Take Lenovo, for example. As a leading manufacturer of PC laptops, Lenovo is focused on what customers want (typical of most companies these days): Best price, best quality, and best service. Like many other shippers, Lenovo focuses on five fundamental areas, which help them to deliver on these expectations:

1. Speed to market and speed of deployment.
2. Value, which is defined by the benefit less the cost.
3. Innovation by creating benefit through differentiation.
4. Quality, which is all about execution. This is defined by the need to get it right, on time, every time!
5. Service, through which people make the difference.
http://www.nasstrac.org