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Released: September 19, 2007
Outsourcing Decisions: Use Strategic Thinking With Caution
Outsourcing can be either a source of competitive differentiation—or a recipe for disaster. That’s the conclusion drawn by Jim Molzon, Vice President of Supply Chain Innovation with Lenovo as he spoke at the recent NASSTRAC seminar Sept. 12-13 in northern California on the topic of outsourcing.
Much of the conversation at this seminar reflected a universal approach that has worked for shippers: focus on core competencies and outsource the rest. “Firms as diverse as IBM, 3M, Dell, and General Motors are vertically disaggregating at an often blinding pace, delegating many of the activities they once performed in house to a network of specialist suppliers,” said Molzon. “However, although outsourcing significant portions of product development and manufacturing may provide competitive advantage, coordinating the outsourced pieces may indeed create new challenges in product development and procurement along the supply-chain interface,” he cautioned.
Many NASSTRAC shippers take great care in focusing on their core competencies, and then select the areas in which they have a “competency gap.” These are areas that are critical in delivering on their value proposition yet are not a core competency. From a transportation and logistics perspective, these potentially outsourced activities can include export and import execution, transportation management, shipment visibility, merge-in-transit programs, modal optimization, landed cost optimization, “final mile” deliveries, and vendor managed inventory. In operations, these activities can include global workforce management, vendor-managed inventory, and service parts management. In fact, several shippers at the seminar discussed that they now even outsource manufacturing – a function that many traditionally consider a core competency. In fact, Shelley Lin, Senior Director of Customs and Transportation at Levi Strauss & Company, said that Levi used to entirely own their manufacturing operations and that now. “In our business it’s all about speed, at the lowest possible price,” she said. “Explore your core competency – and focus only on that.” Today, Levi Strauss manufactures from 30 different origins, leverages several third-party locations, and oversees a multi-echelon distribution network. This strategy reflects similar approaches taken by many shippers involved in NASSTRAC.
In whatever you decide to outsource, be customer-driven in your decisions. Take Lenovo, for example. As a leading manufacturer of PC laptops, Lenovo is focused on what customers want (typical of most companies these days): Best price, best quality, best service. Like many other shippers, Lenovo focuses on five fundamental areas which help them to deliver on these expectations:
1. Speed to market and speed of deployment.
2. Value, which is defined by the benefit less the cost.
3. Innovation by creating benefit through differentiation.
4. Quality, which is all about execution. This is defined by the need to get it right, on time, every time!
5. Service, through which people make the difference.
Levi Strauss: Managing A Multi-Echelon Distribution Network
Founded in 1853 by Bavarian immigrant Levi Strauss, Levi Strauss & Co. is one of the world's largest brand-name apparel marketers with sales in more than 110 countries. There is no other company with a comparable global presence in the jeans and casual pants markets. This company’s market-leading apparel products are sold under the Levi's®, Dockers® and Levi Strauss Signature® brands. This leading company employs a staff of approximately 10,000 worldwide, including approximately 1,010 at our San Francisco, California Headquarters
According to Shelley Lin, Senior Director Customs & Transportation for Levi Strauss, the company used to completely own and operate its manufacturing function. “We call that time our ‘O&O days,’” she says. “In our business it’s all about speed, at the lowest possible price. Explore your core competency – and focus only on that.” Today, Levi Strauss manufactures from 30 different origins, leverages several third-party locations, and oversees a multi-echelon distribution network. Lin is responsible for Customs and inbound transportation in the United States and Canada.
She emphasizes that measurement is critical to success: “I always tell my staff, ‘If you can’t measure it, you can’t change it.’”
Solectron: A Powerhouse Behind Electronics Manufacturing
Solectron Corporation is a leading global provider of electronics manufacturing services (EMS) and integrated supply chain solutions. Founded in 1977, this industry leader serves the world's most innovative companies in industries that rely on high-tech electronics. Solectron has more than 50,000 employees who have a hand in designing, making and servicing products that people around the world rely on every day.
The company’s product design, lean manufacturing and aftermarket services offer customers competitive outsourcing advantages, such as access to advanced manufacturing technologies, shorter product time-to-market, lower total cost of ownership and more effective asset utilization, according to Reid Thompson, Director Logistics, Americas for Solectron.
“Like Levi, we measure performance,” says Thompson. “We set expectations, set up KPIs, do monthly report cards, and quarterly evaluations with partners. Our approach is very robust, very structured. During this process, we always ask: ‘What can we do differently to be better?’”
Genetech: Saving Lives With Every Shipment
Genentech's mission is to be the leading biotechnology company, using human genetic information to develop novel medicines for serious and life-threatening diseases. This leading biomedical company is committed to high standards of integrity in contributing to the best interests of patients, the medical profession, its employees, its communities and its stockholders.
“Our shipments are comprised of very high-value,” says Frank Hathaway, Associate Director for the Center for Logistics Excellence at Genetech. “That’s because our products save people’s lives. Think about this. A person is being diagnosed by a doctor with a life-threatening disease. Usually the last decision of that critical medical visit is how to proceed with treatment and usually there’s little time to waste. Usually there’s an urgent need, often to get our product as quickly as possible to the patient. That person’s life is now in our hands. Service is what drives us, as we manage critical shipments of our products to save these people’s lives.”
There’s no question that Genetech demonstrates the ultimate value in the need for speed and accuracy in transportation and ultimate delivery. Hathaway says that Genetech is constantly working with its providers on making sure the process is flawless. “When we work with our partners, we ask them, ‘What are we doing that’s driving you crazy?’ Then, whenever possible, we work to change it. We’re continuously on the quest to make sure reliable deliveries happen, all the time.”
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