Contracting out elements of a supply chain can give organisations lower cost bases and greater flexibility, something that is increasingly important in the current climate, as Guy Clapperton reports
Aiming to get good value from a supply chain is nothing new, nor is it especially revolutionary that companies make different decisions about whether they should outsource, keep processes inhouse or even acquire their own supply channels.
The disadvantages of owning your own are obvious enough. Vanessa Hope, head of sales and marketing at outsourcing specialist Torque, outlines them swiftly. “Companies take on a five or ten-year lease on a warehouse and equipment which is a long commitment, and they aren’t always in a position to make the best use of it as an asset,” she says. Using a third-party logistics company means a business has access to specialists with experience in security and can scale up or down in response to the various economic headwinds. You cannot physically scale down a warehouse you’ve bought, by definition.
Not everybody has her vested interest. David Burns, general manager for global technology services for IBM in the UK and Ireland, specialises in IT underpinning supply chains, and explains that there are a number of scenarios in which clients might think about outsourcing aspects of their supply chains and a number of factors they need to consider.
“In one, the client is looking to decrease some costs in this area and, in this case, is not really differentiating the supply chain from any other area of IT,” he says. “In that case you can look at traditional savings areas, such as infrastructure outsourcing.
“Second, the client might be looking to gain efficiencies and returns from the supply chain process,” he adds. “In that case, it’s important to look at who can provide a transformation of the supply chain process, aligned to your business, driving efficiencies from standardisation, consistency and improved discipline. This offering will combine the first scenario too.”
The more a client is able to enforce standardisation, the greater the return on their investment
Another option is to align with a partner who can source non-strategic items, combining both of the approaches above for generalist purchases. “A great example of the third type of relationship for IBM is Telstra, Australia’s largest telco,” explains Mr Burns. “Supply chain is a critical component of their business, but they have differentiated the process and non-strategic - or indirect, as it is also known - sourcing from direct purchases such as network equipment.”
Rob Atkinson, senior executive in Accenture’s UK and Ireland supply chain practice, suggests a lot will depend on the industry in which a company operates, but says there is an overall tendency towards outsourcing. “In the face of increasingly volatile demand side and supply side shocks, we only see this increasing,” he says. “Supply chain outsourcing provides agility and ensures companies do not need to commit to infrastructure, staff and systems that they may not need; not just ten years from now but even in the shorter term, for example 12 to 24 months from now.” Like any partnership, it needs managing if it’s to work effectively. “If you incentivise and contract with your partners in the right way they can provide a great shock absorber to the volatility of economic events,” says Mr Atkinson. That has been more necessary in recent years than for decades, he adds.
There is, though, more to making the supply chain strategic to a business than simply deciding which parts to retain in-house and which to outsource. “Customers are looking for an operating model that can help them connect, interact and respond seamlessly with their customers, staff, suppliers and resources, wherever and whenever they are operating,” says IBM’s Mr Burns. “I’d highlight analytics as a real innovation in supply chain management, with the ability to analyse and show information in a dashboard overview, allowing decision-makers to take decisions on current data, and in some cases even consider predictions on future outcomes.”
Future changes are in the pipeline, however, and sometimes the ones that sound the most straightforward can turn out to be anything but. “In terms of challenges, it is often the case that the more a client is able to enforce standardisation, the greater the return on their investment,” says Mr Burns. “Striking the right balance for a business is essential and that requires the client to have clear priorities aligned to their overall business strategy.”
It’s salutary to notice what the hauliers and specialists themselves are saying about their priorities, though. Asked about the challenges facing her industry and what’s going to make a difference to profits and sustainability in the near future, Pall-Ex founder and TV Dragon Hilary Devey points to areas the consultants and specialists don’t often mention.
“Cloud computing has made a big difference to operations,” she says. “The fact that everything sits on the web allows for greater flexibility, access and resilience. Advances in mobile technologies have also had a massive impact on the industry. The cost of this is dropping year-on-year, providing greater real-time supply chain visibility, especially when you consider things like POD [point of delivery] capture, vehicle tracking and mobile worker solutions. This results in greater efficiency for customers and logistics firms alike.”