From Apply Now,
Your Guide to Logistics / Supply Chain.
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4 Reasons to Outsource

The outsourcing revolution has begun. Long gone are the days since Henry Ford pioneered the vertically integrated organization and convinced everyone that it was the best model to strive for. The new competitive weapon for leading organizations now is to stick with what they do best – and leave everything else to someone else.

• Focus on Core Competency

  There is a lot of merit to focusing the organization’s resources to what it does best. It is a leaner organization and more responsive to what its customers changing demands are. For example, Nike is really good at marketing its brand to convey the ‘just do it’ mentality as well as designing visually appealing shoes. Thus marketing and product design are its core competencies. It does not get physically involved with the manufacture of the shoes it sells. This function is outsourced to companies located in countries such as Mexico, China, India, Malaysia, etc. where the most efficient resources for completing this task exist. Find out what your organization really excels at and outsource the rest. Focus on building your strengths to maintain competitive advantage.

• Cost & Capital Spending Reductions

  The Finance folks love outsourcing as it reduces the cost of operations. In the logistics / supply chain management area for example, the cost to maintain a fleet of delivery vehicles, maintain warehouses and incur expenses such as property taxes, utilities and labor (wages and benefits) is reduced. In addition, new capital expenditures on equipment and machinery, land and buildings are eliminated. One organization that I have worked for sold its distribution center and immediately signed a 20 year lease with the new owner. It preferred to take cash now and expense the facility moving forward.

• Increase Process Quality

  As more of the organization’s resources are allocated to its core competency, its core product or service will get better. Products will have fewer defects, higher reliability and lead times will decrease, speeding the time to market. All of these are direct and visible benefits to the customer. For example, when Hewlett Packard decided to outsource the manufacture of circuit boards for its line of computer monitors, it not only enjoyed cost reductions but also an increase in the quality of its monitors due to the higher quality boards. The circuit board manufacturer is able to spend time to improve the quality if its process as it produces millions more circuit boards than HP does.

• Access to Latest Technology

  As your organization begins to outsource functions, it will receive the added benefit of access to the latest technologies for that function. For example, the reverse logistics process requires special processes to determine if the goods being returned can be re-sold, refurbished, recycled or sent to a local jobber and must be tracked accordingly. Many organizations do not have the systems capability to efficiently track this movement, both physically and from a cash flow perspective. Genco, a reverse logistics specialist, is able to provide this service for many national retailers using its in-house systems and processes that it has developed for the industry.

If you have already started to outsource some of your non-core functions, congratulations! If not, you may be missing out on some good opportunities to add value to your product or service.