November 2003 | Commentary | 3PL Line

Retailers Take Outsourcing to the Next Level

Tags: 3PL

As the economy creeps forward, retailers must focus on taking control of their supply chain functions. This sounds like a no-brainer to those of us who work day in and day out on tightening the supply chain.

But the fact is, many retail organizations are simply not set up to get a good view of their supply chain and therefore could be allowing millions of dollars to seep out of the company.

The good news is an emerging trend that is helping to shift the paradigm of supply chain management for retailers. It may also help these retailers get better visibility into their supply chains, and ultimately control costs. This trend is an extension of outsourcing.

For years, retailers have been hiring outside experts to help them get a handle on their entire supply chain. Today, leading edge retail companies are making the ties to their outsourcing partners so close that the employees of the outsourcing expert are "dual citizens"—seeming to belong equally by right and by job description to both the client and the outsourcing partner.

The benefits of this relationship between outsourcing partner and retailer are enormous. The premise of outsourcing is that a company hires an outside expert to deal with a specific area that is outside the realm of the company's core business. The value proposition is that the outsourcing expert will save the company money, and the company will not need to distract its employees from their core business in order to streamline, cut costs, and increase profit.

The companies who take this relationship to the next level can get optimal advice and benefits from outsourcing. These companies leverage the benefits of an unparalleled internal perspective.

Take the retail company Best Buy Co. Inc. as an example. This company has an outsource provider who works on-site at the retail store's corporate headquarters in Eden Prairie, Minn. That employee is privy to the key data and concerns that are shared not in formal meetings, but in hallway and cafeteria conversations.

By taking into consideration this shared information, the third-party partner can balance this internal perspective of his client with the perspective of outside experts to come up with solutions, ideas, and tools that can help the client make the most of this relationship.

This arrangement means that the outsourcing partner has the benefits of both an internal perspective, and the experience and expertise that comes from having taken on similar challenges for other companies. As a result, the outsourcing partner can bring to the table solutions that have worked for other companies, but also that are very tailored to the client.

When choosing an outsourcing partner with this very integrated approach as a goal, companies should follow these five steps:

1. Be sure you are comfortable with the people on the team. Bringing an outside expert in-house can be tricky. You don't want someone you don't feel comfortable with hearing information that is—understandably—considered very sensitive.

2. Consider carefully how open your company is willing to be. The outsourcing expert can only be as successful as you allow them to be. Their work depends on your level of commitment to sharing critical information.

3. Don't be intimated. Outsourcing partners work for you. You are the client, they are the experts. You know your business best, and sharing your point of view is critical to the success of the relationship and the business.

4. Make it a long-term partnership. Consider the outsourcing partner as an employee. Hold them accountable for successfully implementing the initial recommendations and solutions.

5. Insist on ongoing input. Make an agreement about the long-term goal of streamlining your supply chain, and insist that you get continual ideas for improvement and innovation.