November 2007 | Commentary | 3PL Line

Co-Sourcing: Two Companies Acting As One

Tags: 3PL

You might worry about outsourcing your company's entire supply chain—not enough control, too many unknowns, not worth the risk.

But you can focus 100 percent of your attention on your core business functions and still keep a close connection with your supply chain through co-sourcing, a custom-tailored system designed to provide the logistics and supply chain services your company needs.

Successful supply chain management is a series of structured and established tactical maneuvers. A great deal of operational savvy is involved in forecasting inventory; managing the picking, packing, and shipping functions required to distribute a finished product; shipping a replacement part; or processing a return from a retail store or consumer.

The decision to keep these functions in-house or contract with a third-party logistics provider (3PL) is entirely strategic and can dramatically impact any organization's bottom line.

Best of Both Worlds

Companies can get the best of both worlds by co-sourcing with a 3PL rather than keeping supply chain functions entirely in-house.

By co-sourcing, companies gain access to more advanced supply chain technology than they might be able to experience or maintain if all services were kept in-house.

Many 3PLs leverage warehouse automation to meet the growing demands and shrinking timeframes customers expect of them. They are required to handle products of varying sizes and weights, with different packaging and kitting needs.

By using the latest technology and synchronizing business processes with customers, 3PLs can maximize speed and service quality.

One Common GoalThe concept of co-sourcing is best defined as putting together a group of service providers who are all working toward achieving one common goal.

Bringing multiple service providers and their core competencies together to provide a total, comprehensive supply chain solution saves companies money, time, and the effort needed to obtain the necessary resources that ultimately lead to customer satisfaction.

Co-sourcing differs from outsourcing by having multiple procurement points already in place; outsourcing typically involves a single provider in only one or two facilities.

Co-sourcing allows an organization to benefit from using numerous providers with the same products. When outsourcing to a 3PL, all supply chain functions are centrally controlled.

A company that is expert in many areas might still have a few weak links in the supply chain. Co-sourcing can strengthen those links by providing the expertise that is lacking.

It is not uncommon for 3PLs to use a co-source relationship with each of its clients. When co-sourcing with a client, the 3PL's tasks include searching or shopping for the item being requested, purchasing the item, shipping it, then billing the client.

Co-Sourcing in Action

For example, a 3PL may work with several major repair parts manufacturers and distributors. For these customers, the 3PL uses a technology-based virtual distribution system with centralized order processing and data management based on each company's business rules.

This automated, non-traditional approach can consolidate and centralize a company's repair parts supply chain functions for carry-in repair facilities, while allowing the execution of parts distribution to remain flexible and decentralized.

All communication can take place automatically through File Transfer Protocol (FTP). Throughout each day a company can transmit to the 3PL a list of parts needed. The 3PL can then send the list to multiple vendors, in a parts "RFP", several times daily. These suppliers respond to the request with price, availability, and part location.

Using the business rules established by each company, the system can automatically choose a supplier based on the best combination of price and delivery speed. A purchase order is then created and transmitted to the supplier. The supplier is able to ship the same day directly to the company's repair facility.

From order to invoice, the entire process can take just minutes and thousands of transactions occur each day.

Another benefit of working with a 3PL is vendor management. Organizations that keep supply chain services in-house must deal with dozens, if not hundreds, of suppliers to manage the availability, price, and geographic requirements of meeting customer demands. When co-sourcing with a 3PL, there is only one relationship to manage.

Accuracy and Control

Companies considering outsourcing logistics should focus on delivery and information accuracy. They should also be able to maintain a level of control over their supply chain processes without having to micromanage the 3PL.

It is time for a company to turn to co-sourcing with a 3PL when it no longer has the resources or core competencies to provide customers with the services and flexibility they require.

By co-sourcing a portion or all of their supply chain, organizations can focus on what they do best, while benefiting from the 3PL's specialization and best practices gleaned from other clients.

Supply chain management is a critical function of any business. To be successful, 3PLs and their clients must work together as honest partners, focused on accomplishing goals together—two companies that function as one.