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06.24.05
Outsourcing
Offshore Supply Chain Management – What It Is And What It
Isn't
 By
Thomas Craig
Outsourcing is having work or an activity done by people who
are not employees of the company. It is not new in logistics.
Outsourcing existed before the topic earned a name and became
business chic.
Trucking companies were used instead of a company having its
own fleet. Public warehouses were used instead of employing
bricks and mortar to build a company-owned building. Freight
payment services paid bills and collected data.
What has evolved with outsourcing is the growth and amount
of functions placed with outside firms and has created new
businesses with 4PLs and 3PLs. Initially, the outsourced functions
often represented non-core or non-vital activities or some
other determinant where the company did not want to invest
its own resources--capital, people, technology and facilities.
Now outsourcing is seen as a strategic way to align the supply
chain with the company direction and to become a leading-edge
practitioner. It is also recognized as a tactical way to better
manage service and costs.
Offshore sourcing has gotten particular attention as an outsourced
activity. This business change has been a driver in supply
chain management evolving into a global function and in the
outsourcing of the import supply chain.
Global sourcing is now a competitive requirement of doing
business. This perceived survival imperative has created an
extended supply chain, as to distance and time, which has
a menu of supplier and logistics demands. Directing the offshore
supply chain, as to costs, performance, inventory, visibility,
collaboration, integration and agility is an imperative for
corporate success.
Effectively managing the offshore supply chain, as to suppliers,
logistics service providers and their coordinated integration
from vendor door to final delivery location, has caused companies
to assess the utilization of outsourced logistics providers,
either 3PL or 4PL. Some firms have seized this outsource opportunity
to transform their total import supply chain; they see it
as a way to compress cycle time and decrease inventory levels.
Others have focused on arranging the transportation part as
the outsourced need. Such differences raise discussion as
to what is and is not outsourced offshore supply chain management.
We conducted a survey of outsourcing. This survey presents
a snapshot of who is outsourcing, why and issues they look
at. It is taken from the perspective of the outsourcing services
user, the buyer. There were 195 respondents. They were with
firms that have strong interest in outsourcing or are active
in outsourcing. The survey was broad, both as to industry
types and to mix of company sizes, and presents a solid overview
of what is happening.
The objectives were to:
1) Assess the state
of logistics outsourcing from the perspective of the outsourcing
buyer.
2) Measure outsourcing development
3) Determine what companies see as future
outsourcing of supply chains
4) Identify
key customer needs
The following points standout from the survey finding:
• 42% outsource half or more of their supply
chains. This is a significant percentage and shows the
degree of outsourcing acceptance, development and penetration.
• Firms see a 10% increase in supply chain
and logistics outsourcing over the next two years. This
shows the continuing, positive trend for outsourcing.
• Only 2% cited technology as a reason for outsourcing.
This finding runs counter to the perception of outsourcing
to gain technology for supply chain integration, collaboration,
visibility and other purposes.
• Firms who
have not moved into logistics outsourcing cite a range of
reasons from adequate in-house resources (16%), organizational
resistance (8%), and loss of control (6%). There
is likely a correlation with organization resistance and loss
of control as a fear-factor in not outsourcing.
• While the function or activity is outsourced is broad,
59% outsource supplier management. This is a significant
use of 3PLs and shows the maturation and application of outsourcing
from transaction driven to process driven. It also shows recognition
that supply chain importance and success begins with suppliers,
who can be difficult to manage, especially those thousands
of miles away.
• 56% import some or all
of their finished products or materials. This also shows
the expanding opportunities for outsourcing of offshore logistics.
With the continuing use of global sourcing, managing offshore
suppliers and supply chains should grow in importance and
need for outsourcing opportunities.
• The criteria
for selecting outsourcing firms follow general understanding.
Interestingly, 53% cite Organizational Culture Fit as
a reason. This shows the need for outsource service providers
to become partners with their customers and to become an extension
of them.
Read
the Rest of the Article
About the Author:
LTD
provides logistics consulting for strategic and tactical needs.
The scope of capabilities is broad--supply chain management,
outsourcing, transportation, warehousing, inventory management,
and more for both domestic and international needs. Clients
include retailers, wholesalers/distributors, manufacturers,
logistics service providers and 3PLs. |
