Career Moves: Does Outsourcing Help or Hurt?
The right outsourcing recommendation can make or break your career. Here’s some advice for using outsourcing to fuel your trip up the corporate ladder.
“Why you @##*[email protected]!!! You’re proposing to eliminate my #*@# job!!! We’re not interested in any #*@# outsourcing!”
That was the reaction of the director of logistics at a well-known snack food manufacturer when it was recommended he outsource major segments of his distribution operations.
The vice president of purchasing at a major leisure industry firm was only a bit more subtle. He had a supply chain problem that required immediate attention. While some outsourcing and expansion of existing software were obvious solutions, his primary objection was, “But outsourcing will reduce my budget requirements and the corresponding status I have here.”
These reactions may sound ridiculous to you. They sure did to me. Later, I’ll let you in on what ultimately occurred in these two situations.
Outsourcing can be extremely beneficial in enhancing service, reducing costs, and coordinating overall corporate activities. A good outsourcing selection, applied effectively, can also enhance your career.
Outsourcing is not the best solution in every case. Often some internal solutions are more appropriate. Those circumstances, however, are generally the exception, not the rule that many who fear the impact on their own careers might argue. Sad to say, it’s often the argument of people who have not immersed themselves in the organization’s production and sales objectives. These are frequently the same folks who find their jobs to be an exceedingly routine experience, interspersed with the regularity of disaster control.
A Career Booster?
Generally, identifying the economic and service advantages of outsourcing has enhanced the careers of innovators who introduce the concept along with specific 3PL recommendations, including economic projections, both in logistics-related savings and business impact.
The executive perception of outsourcing, however, is often far more simplistic than the reality—it’s not a simple turning over of responsibilities that some people conceive it to be, and, unfortunately, the way many 3PL salespeople present it.
Outsourcing is not simple. It is not the abdication of a corporation’s need to manage its logistics activity. Managed most effectively, it is a mutually cooperative effort.
Far too many individuals fear that by outsourcing they give up their area of responsibility and their value to the organization along with it. That perception is wrong.
For example, watching a mechanic at a dealership try to loosen a lug nut with his hands, rather than a wrench, would be disheartening. And he sure is faster and more thorough using the computer diagnostics instead of intuition coupled with trial-and-error analysis. Outsourcing is simply a tool that allows logistics managers to shed the mundane and focus on the broader scope of business issues that can result in greater efficiencies and revenue growth. After all, isn’t that what business is all about?
Most logistics majors I knew in college were not looking forward to spending the next 43 years nestled in some mundane role, doing other people’s bidding, and functioning as the lowest common denominator—heading a cost center, for example. Like you, they aspired to be movers and shakers who made the difference in company growth and profits. Well, that doesn’t happen very often when the only resources available are you and those assets that appear necessary to just about, but not quite, get the job done.
Let’s face it, over the past decade, just about any company with an empty truck or an empty warehouse added the word “logistics” to its name, while possessing about as much expertise in outsource management as my fraternity brothers and I had in planning a formal dinner party.
Outsource decisions were made, outsource decisions were regretted, and the stories of those catastrophes spread. Many of those “bad actors” are still out there and, when the economy weakened, their legions grew.
And, just because a particular 3PL has been effective in one role does not mean that it is appropriate for all situations. Barge operators on the Ohio River do an incredible job of timely bulk handling, but based on that performance, I wouldn’t depend on them to handle diamond delivery to meet tomorrow’s engagement ring demand in Tokyo. Similarly, making the appropriate match of outsource provider to your company’s current needs and future plans is critical.
3PLs Get Wise
Quality 3PLs are wise to the fact that some companies will invite them in to do an evaluation and make a proposal, then use the information to design their own new logistics program or discredit future outsourcing consideration.
As a result, many third-party logistics companies have started charging for their evaluations. That way, you own the information, whether you decide to use it or do nothing. If you determine that it is appropriate to move forward, the 3PL usually deducts the cost of the evaluation from future billings.
Aside from being expensive, that process can be time consuming. Once you’ve incurred that kind of expenditure, your CFO is bound to start asking to see what you got for the money. Once the 3PL has produced an evaluation that it feels has value, an aggressive sales type is likely to make sure that somebody else in your organization gets sold.
If the law didn’t require it, your CFO would be prone to pay for an outside audit every year, if only to protect his own credibility. He understands that concept. He is also likely to understand why you might wish to spend a few dollars every few years to have an outside entity review your current operations and logistics plans. By securing a professional outside evaluation, you can use that perspective to adjust and fend off “force feeding” of an outsourcing compromise that you know is not appropriate.
Several credible logistics consultants are out there, who are reasonable in cost and unintrusive in practice. They are a whole lot more comfortable to deal with, and to bring to your CFO. And that is a whole lot more comfortable than fending off an outsourcing proposal that senior management deems appropriate to entertain because you did not.
Evaluating an outsource partner, when done right, is usually very time- and resource-consuming, particularly if you try to go it alone. Attempting to do multiple evaluations is often impossible for even some of the largest organizations that have substantial resources they can divert from day-to-day activity.
That’s why it is imperative that you choose an outsource partner with service credentials and software systems capacity. Most importantly, make sure the 3PL is a cultural match.
Will it Fly Upstairs?
After determining that outsourcing is a good idea, many logistics managers are concerned about how that recommendation will be received in the executive suite. Repeatedly, over the last several years, surveys of senior executives have produced the same basic results. More than 90 percent of corporate leaders indicate that taking control of their supply chain is one of the top three priorities that require their attention. Of those same managers, slightly less than 20 percent have taken overt action in that regard.
I get the sense that these executives would love someone in their organization to step forward with a plan that provides a vast array of resources that appear to be unattainable, allowing them to compete on equal footing with the rest of the world.
The two examples mentioned at the beginning of this epistle had some interesting results. The vice president of purchasing attempted to move forward with the additional software purchase, while retaining a bloated staff. The firm’s CFO, frustrated with the budget defense of excessive spending and the lack of corresponding efficiencies, hired his own logistics consultant, which resulted in draconian cuts in the purchasing department, including the removal of a certain VP.
On the snack food front, the COO to whom logistics reported, frustrated with what she perceived to be stagnation in the logistics operation, decided to attend a few seminars. She met other executives who told her about the outsourcing successes they had experienced. She suggested that the logistics director consider that option and was greeted with his outright “expert” dismissal of outsourcing as ineffective. Within a few months, the logistics team was informed that the entire operation had been contacted out and that the director had taken a very early retirement.
Contrast these allegories with this true tale of a bashful logistics manager who did not want to be identified in this article. We’ll call him Joe.
Through the 1990s, Joe’s firm experienced unprecedented growth, with an expanding requirement for off-shore parts sourcing and dramatic increases in both North American and European demand. That’s when they hired Joe, who had proven successful managing global activities at a smaller but similar business.
Initially, Joe was able to organize a very effective supply chain system, which he coordinated with purchasing, production, and sales. But, it kept growing and Joe found himself increasingly focused on putting out fires rather than planning. The expanding scope of the enterprise and the high regard for his performance to date would have easily warranted approval for Joe to expand his staff. But he opted instead to seek some outside help in identifying how he might best control the growth, while maintaining and enhancing performance.
Joe didn’t stop there. With some assistance, he sought the advice of his peers in various parts of the company, including sales, marketing, purchasing, and manufacturing.
The presentation Joe ultimately made to the executive team did not provide for any additional staffing. In fact, Joe recommended that his position be eliminated.
Joe demonstrated to the executive team how he would be able to significantly enhance the scope of capabilities and reduce unit costs by acquiring ASP software to be utilized in conjunction with outsourcing most of the firm’s functional logistics activity. He further demonstrated, with the support of several key business unit managers, that he would effectively be able to help them provide better operating efficiencies, while enhancing customer interface and speeding the revenue growth.
And what became of poor Joe, who recommended his job be eliminated? He got promoted to a newly-created role, which he also recommended. In his new capacity, Joe now oversees all logistics activity, including management of the firm’s 3PL. The CFO moved some purchasing coordination responsibilities to Joe’s new post. Sales and marketing were happy to consolidate most of the customer service and order-taking responsibilities through Joe and the new software.
Joe, temporarily, was elevated from his manager level to the title of director. I say temporarily because the following year, the board approved the CEO’s recommendation that a new vice president slot be created.
By outsourcing, Joe discovered he was able to do so much more and make a greater corporate impact with less. He removed the mundane, day-to-day management, allowing him to fully concentrate on the larger issues that meant more money to his employer.
He also availed his firm of resources far beyond those that it might have allowed—even at its rate of success and growth. When the economy turned downward and growth waned, he did not have to shed any additional staffing. In conjunction with his 3PL partner, Joe was able to make dramatic adjustments in operations that helped sales reignite business.
Outsource management is a tool. Implemented in a coordinated manner, outsourcing isn’t a challenge to one’s position. It can be the fuel for launching that next big move up the corporate ladder, perhaps to a position that never previously existed, as Joe found out.
Joe had a really neat situation. A growing company tends to be a fun place to be and a positive venue where innovative thoughts are well received. Unfortunately, that is not always the situation. In the business atmosphere of the last 30 months or so, people tend to be “hunkering-down.” They don’t speak up, preferring not to draw attention to themselves. But recommending the appropriate outsource relationship is often one of the best ways to secure the individual security that keeping one’s head down does not provide.
Help Me Rhonda
Here’s an example. Rhonda, a finance manager at a medium-sized division of a large basic commodities manufacturer, wanted to identify some near-term cost reductions. The logistics function reported directly to Rhonda and she found herself being pulled further into the daily operations, leading her to believe that there had to be a better way to manage the operation and handle demand at a lower overall cost. She turned to a outsource consultant to help her identify some potential savings opportunities.
As she worked with the consultant, however, she began to recognize two very important issues.
First, Rhonda saw that she did not have the internal resources to maintain control of logistics activity. What she had could barely handle the basics of shipping and storing inventory, let alone enhance efficiency.
Second, she recognized that her logistics operation was essentially reactionary, making it particularly hard for customers to buy smaller lot products, which represent the largest profit margins. In a more favorable economy, Rhonda might have secured the budgetary commitment to sustain operational savings while enhancing customer service. But in these tough times, new money was not a possibility.
Rhonda could, however, satisfy the efficiency and customer service issues by tapping the resources of an appropriate third-party logistics provider.
Unfortunately for Rhonda, the 3PL her company selected failed to sustain the initial improvements and never followed through with a software implementation originally promised. It ended the relationship a few years later.
But, by then, Rhonda had been able to develop the information necessary to support her theories and could demonstrate definitive examples of how improving logistics functionality provided the vehicle for controlling costs, enhancing customer service, and selling more higher-yield products.
Essentially, Rhonda was able to change the way her firm dealt with customers. She reduced logistics-related costs. By helping the firm increase profitable revenues in difficult times, she got herself promoted into a role that allows her to participate in business decisions as a full member of the executive team. Now she is better equipped to select a more appropriate 3PL to meet her evolving needs for many years to come.
I recently heard from Amy, who called to tell me of her recent promotion. She doesn’t work where she did when we met a few years ago. Then, she was a proud 1990 Michigan State logistics grad who, after spending seven years with a giant manufacturer, had been selected to head logistics operations for a $200-million consumer goods company.
During her first year there, she had fun implementing practices she learned while with the larger organization. Then reality settled in. As the demands of competition manifested themselves, and the firm was forced to do more manufacturing offshore, managing logistics became more complex. Amy and her staff of two were no longer able to control things as effectively as she and her superiors desired.
Amy was introduced to a third-party logistics company that seemed to possess the service experience and cultural match she needed. As she expanded the 3PL’s interface with company executives, it became increasingly evident that she was about to recommend the elimination of her position. She was not, however, eliminating the need for her.
The 3PL approached her firm’s management and requested the opportunity to discuss her joining the 3PL, managing their operation. That role quickly evolved into Amy overseeing multiple client operations.
In her new job, Amy leads project teams. Essentially, she helps those teams effectively do the same kind of evaluation and service package design, including a quantifiable value proposition, that she had done to convince her employer that outsourcing was the right decision.
The Right Decision
Outsourcing isn’t right for every situation. Investing in some good software may be a better option. Perhaps outsourcing a particular segment of your current operations is warranted, instead of the whole thing. No change at all, as unlikely as that prospect may be, could even be the right thing.
But, if somebody else in your organization becomes the champion of outsourcing, you may find yourself in a position where you are resisting progress only to protect your job. This leads to arguments that, in the long run, you will lose.