At the CSCMP Annual Global Conference earlier this month, I moderated a session focused on whether you should outsource a supply chain function or keep it in-house. Two case studies were presented: an “outsourced” one by Bill Pollard, VP of Customer Service and Transportation at Del Monte Foods, and an “in-sourced” one by Todd Jackson, President at Alliant Logistics, a division of US Foodservice. I will discuss the key takeaways from their presentations in a future posting. Today, I want to leave you with three questions to think about, the same questions I presented to the audience in my opening remarks.
1. Is defining ‘core competencies’ enough? The simple approach to determine what to outsource versus what to keep in-house is to assemble a strategic team to define what your core competencies are or need to be moving forward. If something is deemed a core competency, then you keep it in-house; everything else you outsource.
But as I highlighted in a September 2009 posting, which referenced a blog posting by Ben Gomes-Casseres published in Harvard Business Review, another key consideration is whether the business function you want to outsource is even ‘contractable’ to a third party. In other words, is the business function a core competency for any service provider?
For most transportation and warehousing functions, there are plenty of logistics service providers with a proven history of experience and success to choose from. But if you’re looking to outsource a not-so-standard business process, or enable a relatively new one like B2C fulfillment was for many companies in the early days of e-commerce, then the decision to keep or develop the capability in-house versus working with a third party to enable it is less straightforward.
2. Is outsourcing a one-way street? I addressed this question directly in an April 2008 posting, so I won’t repeat myself too much here. But the quick answer is that the old adage “Once you outsource, you never bring it back” is no longer true, especially in transportation.
About eight years ago, I interviewed the logistics director at Diageo about logistics outsourcing and the changing role of 3PLs, and something he said has always stuck with me:
“A company’s outsourcing strategy cannot remain static. As the nature and complexity of supply chains change, so must the nature of outsourcing relationships.”
What your 3PL partners will be doing for you in five years will likely be different than what they are doing for you today. You might bring some functions back in house, maybe because you now believe they should be internal core competencies, and you might outsource other functions that you’re currently managing in-house today. This implies that the nature of how you manage outsourcing relationships must also change (see Vested Outsourcing).
3. What about taking a blended approach? Outsourcing was generally a binary decision: you either handed the keys to everything to a third party or kept it all in-house. There was no middle-of-the-road option, where you can keep some functions of a business process in-house while outsourcing others. However, over the past few years, service providers have started to offer hybrid solutions, such as managed transportation services where companies typically keep procurement and carrier management in-house while outsourcing daily execution tasks to a 3PL (for related commentary, see “Time-to-Value: Developing a SaaS Equivalent for 3PLs”). The bottom line is that when it comes to logistics outsourcing, you’re no longer limited to the “all or nothing” option.
I’ll end with a graphic that I showed the audience to kick off the Q&A portion of the session. It presents additional questions and “food for thought” to consider.
Now that I’ve started the conversation, keep it going. Post a comment and share your viewpoint on this topic and the questions I presented.