The next best practice addresses Core Competencies. We need to focus our attention on the things that truly add value to the customer and therefore give us market position. If we don't focus on the core competencies and we try to do it all, we won't have time to improve, provide leadership and go peak-to-peak on the things that are really important to the customer, and therefore we will fail.
The challenge is that organizations outsource things that are not their core competency, but they don't have a core competency in outsourcing. Oftentimes someone says, "OK, let's outsource our warehousing and transportation." They take the guy who presently runs transportation and distribution, and they give him the responsibility of outsourcing that task. This guy may be an expert at transportation and distribution, but he's not an expert at outsourcing, and he's going to mess it up. Then you wind up spending more money and having less customer service, and spending more management time to straighten the mess out, than if you had just done it internally. It's absolutely critical to develop a competency in outsourcing and then grow an outsourcing relationship that's consistent with the supply chain.
S&DCE: Are there specific best practices around outsourcing that people can use?
Tompkins: Absolutely. In fact, there's what I call an outsourcing lifecycle that has three phases to it. There's the dating game, there's the honeymoon, and there's the happy marriage.
The dating game has two steps: the process of defining requirements and developing requests for proposal, and the process of selecting which outsourcing partner you should work with. There are very clear guidelines and rules on how to do that well.
The honeymoon consists of two steps: forging the legal relationship, which is taking the request for proposal and translating it into a contract that says what is going to happen, how you're going to measure it and how you're going to pay for it and so forth; and then actually implementing the relationship.
The happy marriage begins after the honeymoon, where you're getting down to a relationship that really works, where you have the right processes in place for handling exceptions, processing invoices, processing communications, reporting back metrics, dealing with gain sharing. We're really gaining an understanding of how to manage the outsourcing relationship over time and how to make the two parties function as one, where the objective is for the outsourcee and the outsourcer to both be successful and to accomplish their needs.
There's a whole series of best practices around managing an outsourcing relationship, dealing with everything from how to define your requirements to how to renew for the second and third phases of the contract. In fact, in May my latest book comes out. It's called Logistics and Manufacturing Outsourcing — Harness Your Core Competencies. That book focuses on how you do each one of these steps.
7. Continuously Improve
The last of the seven habits that we need to adapt for the overall supply chain is Continuous Improvement. We can never stop pushing for the next level of performance. We need to continuously go through these other six habits of understanding how we communicate, benchmark, assess, prioritize, provide leadership and focus on our core competencies, and then do it again and again and again. Step 7 would be, return to Step 1 and do it again. You've got to do it faster, in a more robust way and at the next level of detail. That's difficult because you're changing how companies work.
In retail, when the mass merchants asked the baby food companies to give them a six-pack of baby juice with two orange, two apple and two cranberry, the baby juice people said, "Don't they know how we run our factories? We run apple juice when the apples are ripe, and then four months later, when we're running cranberry juice, there's not an apple in the house." Their thought process was that the packaging hall had to develop the finished product. Well, the packaging hall needs to produce bottles of apple juice, but you don't have to put the wrapper on the bottle, and you don't have to put the bottle in the final package for customer consumption. You store naked apple juice in bottles in the warehouse, and then when the request comes in from the customer, you wrap it in any way they want it. And if they say they want three apple juice and three cranberry juices in the same six-pack, no problem. So they had to change their whole thought processes around what was manufacturing and what was distribution, because now distribution is doing the packaging of the final unit as well as doing the labeling on the individual jars. That gave the juice company much more flexibility to get the product to the customers in the way that the customers wanted it. That's continuous improvement.