Outsourcing Decisions: Use Strategic Thinking with Caution

By Brian Everett

Outsourcing can be either a source of competitive differentiation or a recipe for disaster. That was the conclusion drawn by Jim Molzon, vice president of supply chain innovation with Lenovo, as he spoke at a recent NASSTRAC seminar in Northern California on the topic of outsourcing. NASSTRAC is a trade association that provides education, advocacy, connections and solutions for professionals involved in all areas of transportation, ranging from full truckload and LTL to containerization and global logistics. Many of its members outsource heavily.

Much of the conversation at this seminar reflected a universal approach that has worked for shippers: focus on core competencies and outsource the rest. "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," said Molzon. "However, although outsourcing significant portions of product development and manufacturing may provide competitive advantage, coordinating the outsourced pieces may indeed create new challenges in product development and procurement along the supply chain interface," he cautioned.

I've found that many NASSTRAC 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 have considered a core competency. For example, Shelley Lin, senior director of customs and transportation at Levi Strauss & Company, said that Levi Strauss used to entirely own its manufacturing operations, but that has changed over time. "In our business it's all about speed at the lowest possible price," she said. "Explore your core competency — and focus only on that." Today, Levi Strauss manufactures from 30 different origins, leverages several third-party locations and oversees a multi-echelon distribution network. This strategy reflects similar approaches taken by many shippers involved in NASSTRAC.

As a leading manufacturer of PC laptops, Lenovo is attentive to what customers want (typical of most companies these days): Best price, best quality, 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.

So whatever you decide to outsource, it pays to follow Lenovo's example and to be customer-driven in your decisions. Ultimately, that's how you will turn outsourcing into a reliable source of competitive differentiation.

About the Author: Brian Everett is the executive director for NASSTRAC, a shipper's association that provides education, advocacy, provider relations and networking for professionals involved in all areas of transportation, ranging from full truckload, LTL, and rail/intermodal to containerization and global logistics. For more information, visit www.NASSTRAC.org.

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