Sunday, December 7, 2014

OUTSOURCING AND THE NEW SUPPLY CHAIN

Outsourcing has gotten a lot of attention over the years as to its role and importance in supply chain mangement. Its purpose has been based on reducing costs. Much of its success has been based on anecdotal stories.
The reality has been that the savings have been more phantom than real and is not a sustainable business model. It has outlived its purpose and is now being looked at as a supply chain risk and being an impediment for a dynamic, agile supply chain that compresses time, increases inventory velocity, drives service, and creates competitive advantage. The competitive advantage issue is important as companies, industries, and markets fight against commoditization of their businesses.
The shortcomings with supply chain outsourcing reside with both 3PLs and with their manufacturing/retail/wholesale customers. Logistics service providers provide a functional role within some niche of the supply chain. They are not supply chain practioners. They are forwarders, truckers, warehouses, or whatever service. Their abilities to fit in changing supply chains, especially with integated processes and technologies are challenging.
These firms were selected based on RFPs and the resultant bids. The RFPs have a slant based on each customer's view of itself, its operation, and its needs. Too many times these views are not valid. Also the views are a snapshot. Customers' businesses change for many reasons. So the role of the outsourced service can change. And adapting to the changes is not easy, for both the buyers and seller of the outsourcing.
The primary selection criterion has been low price. It is not service performance selection. That is a significant--and flawed--difference for supply chains trying to service customer demands and create separation for competitors.
The new supply chain uses logistics outsourcing. But the role and positioning has changed.
That new supply chain that drives blue ocean opportunities for the new e-commerce, global e-commerce, and multichannel requires outsourcing providers to be selected and to operate based on service and performance. They must fit into the integrated supply chain, both as to process and technology. It is no longer about a logistics function. It is about compatibility with where customers are going and how to get there.
Out with the old. In with the new supply chain and its outsourcing.