May 2004 | Commentary | 3PL Line

Knowing What and When to Outsource

Tags: 3PL

Anyone who has visited Kansas City to savor down-home cooking and fried chicken will recognize the tag line, "We Choke Our Own Chickens" as belonging to Stroud's restaurant. Marketers say that you have to be on the edge to cut through all the clutter, and I think you will agree that Stroud's slogan has done just that.

Stroud's has been around Kansas City since the early 1900s. Originally, Stroud's was located out in the country and actually did raise its own chickens. Over the years, the city grew and eventually enveloped the restaurant and now, of course, the chickens aren't raised out back anymore. I don't know where the chickens are raised, nor do I care, because the chicken there is as good as any, and my perception is that the restaurant does in fact raise and choke its own chickens.

Getting to the Core of IT

So why is this article in a logistics magazine? It all has to do with core competencies and what we know as outsourcing. In the early years, Stroud's decided to raise and kill its own chickens to have the freshest meat available for its diner. Now the people at Stroud's outsource that function to a supplier who they trust to provide the restaurant with the highest quality product available.

Interestingly, however, in the early days the restaurant didn't plant and harvest its own green beans, potatoes, or corn. Those products were outsourced. Stroud's figured that its core competency would be fried chicken and everything else, which would still have to be the highest quality, could be sourced from outside.

Knowing What You Know

Last year at the International Mass Retailers Association Logistics conference, Tom D'Ambrosio, divisional vice president of transportation for Kmart, stated that his logistics staff handles only 80 percent of the functions required within the company and outsources the other 20 percent. He explained that the demands on his staff are often greater than the resources available. The logistics staff manages the core functions of transportation and outsources other projects to various third parties.

This solution seems to work well for the company. Kmart focuses on its core competencies within transportation and logistics, and outsources the functions that might require a different level of expertise or drain resources during peak times of the year.

Not only should one consider the ever-present supply and demand theory of maintaining sufficient resources to accomplish all required functions, but the qualitative factors must be analyzed as well when considering outsourcing. Let's face it, no one is great at everything. Most individuals try to be proficient in certain areas and while some people exceed at multiple tasks, most of us recognize that we should concentrate on a few key skills.

Companies are just like people. Great companies are good at one or two things, but many companies try to be all things to all people and end up delivering a level of mediocrity across the board.

For a 3PL to be truly successful, it must focus on a few key areas and become proficient in them. 3PLs gain a better reputation from doing a little bit well than from doing a lot marginally.

For organizations, companies, and departments, the same rules apply. Focus on your core competencies and excel at them. Outsource those functions that you perform marginally or only have limited resources to manage. In today's environment, people are asked to do more with less and it's very easy to succumb to the temptation of keeping everything within.

An Honest Assessment

The first thing you should do is undertake an internal assessment to determine your core competencies. If you are honest with yourself, you know your own strengths and weaknesses as well as those of your department and your company. If you have trouble assessing this on your own, ask an outsider. Many companies and departments typically ask customers (internal and external) to assess and describe their core competencies.

Once you understand your true core competency, consider outsourcing those functions in which your performance is marginal. If it worked for Stroud's, it can work for you.