July 2003 | Commentary | 3PL Line

Riding Outsourcing Waves: Hang Five to Thrive

Tags: 3PL

Improving supply chain performance by outsourcing has been in vogue for decades. But has the outsourcing process kept pace with the emergence of the supply chain manager (SCM)—a single provider responsible for end-to-end performance?

The first wave of outsourcing focused on exchanging fixed assets for leaner balance sheets and variable logistics costs in warehousing and transportation.

In the second wave, technology took the forefront as companies turned to outsourcing to avoid costly systems development needed to tie the supply chain together.

The third wave saw a proliferation of dot.coms, web exchanges, software companies, and integrators flood the industry with promises of "friction-less" supply chains, real-time collaboration, and closed-loop planning and execution.

This wave's collapse illustrates the crucial role of the 3PL as a source of knowledge capital, physical infrastructure for execution, and an integrated technology platform. The supply chain manager, or master integrator and contractor, has now moved to the forefront.

The current RFI/RFP and site visit procurement cycle is outmoded in today's environment. The time, cost, manpower, and business interruption this process requires is a drag on a company's ability to compete on a daily basis.

In addition, service providers fall into old patterns of tendering capabilities and prices, not solutions.

When selecting a SCM, developing apples-to-apples comparisons between suppliers becomes increasingly difficult given the expanded scope. Evaluating potential SCM suppliers can quickly become a dead end as bidders return endless design assumptions, data discrepancies, and different pricing approaches.

Five Steps to Selecting a SCM

Therefore, it's time for another approach to selecting a SCM. Here are five ways to rethink the process:

1. Develop a set of business scenarios and challenges that describe your future operating environment. Look forward one to three years and document the desired material, information, and financial flows and their operating challenges.

2. Focus on service providers based on their knowledge capital and ability to innovate. Don't waste time on a cattle call of potential providers. Categorize potential partners by the scope of their capabilities and research industry citations for best practices, thought leadership, and industry recognition.

3. Test a core provider group. Ask for design responses to your scenarios in a case-study format, evaluating their methodologies, processes, thought leadership, flexibility, and business compatibility. Utilize oral exams—challenge the provider to develop solutions on the fly in a face-to-face meeting. Watch how they propose managing to statistics and metrics. Pilot the designs of two or three providers internally through stakeholder validation, white-boarding, financial modeling, and by assessing cultural fit.

4. Force-multiply your supply chain and drive your SCM provider to achieve breakthrough performance by:

  • Encouraging supplier combinations to achieve a cross-functional solution.
  • Re-working your financial supply chain through raw material and work-in-process inventory financing and cost-of funds arbitrage.
  • Finding ways to leverage your supply chain infrastructure through commercialization or by selling it outright.
  • Deploying exception-based management visibility systems to manage across the global supply chain.
  • Evaluating a provider's master-contractor credentials and ability to assume risk.

5. Creatively contract for business model enablement. Apply risk where risk can most economically be borne, adopting a variable pricing strategy, and ensuring knowledge capital is documented and shared.

By adopting this new approach to SCM selection, your company will save time and resources, leap frog the competition, and ensure a successful outsourcing partnership for this decade.