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Jim Molzon, VP Supply Chain Innovation, Lenovo
Outsourcing Decisions: Use Strategic Thinking With Caution
Outsourcing can be either a source of competitive differentiation—or a recipe for disaster. Much of the conversation at a recent NASSTRAC seminar in northern California reflected a universal approach that has worked for shippers: focus on core competencies and outsource the rest.
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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. However, although outsourcing significant portions of product development and manufacturing may provide a competitive advantage, coordinating the outsourced pieces may indeed create new challenges in product development and procurement along the supply chain interface.
Many 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 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:
• Speed to market and speed of deployment.
• Value, which is defined by the benefit less the cost.
• Innovation by creating benefit through differentiation.
• Quality, which is all about execution. This is defined by the need to get it right, on time, every time!
• Service, through which people make the difference.
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Jeff Tucker, CEO of Tucker Company
Managing Inbound Logistics Uses a Difference Muscle
Inbound logistics and non-inventory (third party) logistics are vital components of any supply chain. They are studied in classrooms and are the subject of business school case studies. Yet, inbound and non-inventory logistics management remains two of the least understood or executed disciplines in the business.
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In today’s era of modest, (if any), reductions in logistics spend by shippers, getting control of inbound freight can deliver the ROI mother lode.
Managing inbound and non-inventory freight takes a different management “muscle” than managing outbound freight. While every customer’s needs are different, there are several predictable challenges and pitfalls when launching and managing these programs successfully. At the outset, it is critical that a shipper’s corporate management team understands and supports the effort. It’s important they take the initiative to promote cooperation between the historically divergent interests of logistics and purchasing departments. When these two departments cooperate, they can create powerful organization-wide strengths and returns.
During our three decades of managing inbound programs for customers, our company has identified five core values good inbound and/or non-inventory programs deliver. During the first year or two, good programs deliver direct logistics and HR cost savings (1 and 2 on the following list). As these programs mature, and the initial low-lying waste and inefficiencies have been identified and wrung from the system--deeper analysis, process enhancements, reengineering and other cost reducing initiatives begin resulting in systemic, long-term supply chain savings.
The five core values of good Inbound programs:
- Freight bill cost containment & proper allocation of expenditures
- Human Resource deployment to more leveraged R.O.I. activities
- 100% carrier contract, insurance compliance & reduced liability (within the program)
- Vendor management, compliance & production planning and visibility
- Education of the customer, its field personnel, vendors and carriers
3PLs often bypass investing in the ongoing education of the customer, vendors and carriers, choosing instead--to deploy their top resources to the next big sale and leaving the program in the hands of inexperienced staff. This investment in ongoing education for the duration of the contract is one of the most fundamental indicators that will result in a successful program.
Jeff Tucker, CEO of Tucker Company is an industry contributor to associations, schools and industry media outlets. He can be reached at 856-317-9600, ext. 122, or jefft@tuckerco.com.
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Gail Rutkowsi, Director of Operations, AIMS Logistics and current NASSTRAC President
Why Bother Getting Involved In NASSTRAC?
The phone keeps ringing, your blackberry is buzzing, your Outlook calendar keeps dinging with reminders…an operations meeting at 10 a.m., team initiatives meeting at 1 p.m., and your inbox is indicating you have 87 new messages. The demands on your time and attention are enormous and given the current state of business today, it’s not going to get any easier.
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As someone who works in transportation, you know that it is the one discipline within the supply chain that is the most affected by outside factors. Those factors range from Mother Nature to the Government, and sometimes they both combine to cause us enormous headaches. Look at how truckload capacity was affected during FEMA’s mismanagement of Hurricane Katrina. Now contrary to your bosses’ expectations, there’s not much you can do about the weather, however, there are things you can do and things you should do to help your company weather the onslaught of issues affecting transportation.
Among those 87 new messages there is the one from NASSTRAC, the monthly NewsLink. The one you keep promising to read and not delete. Remember? Why should you bother to read it? Think about this:
- For several years, NASSTRAC has participated actively in proceedings before the Federal Motor Carrier Safety Administration in its rulemaking proceeding on revised Hours of Service rules. Now that the current rules are in court, being challenged by safety advocates seeking more restrictive rules, NASSTRAC has worked with ATA and others on a joint carrier-shipper brief defending the current rules. NASSTRAC General Counsel John Cutler says a court decision is unlikely before 2007. Companies, who are large truckload shippers, have reported that the new HOS rules have impacted their transportation costs by up to 15%.
- In comments filed with the Surface Transportation Board, NASSTRAC called for termination of antitrust immunity for the National Classification Committee. The comments were filed in STB Docket Ex Parte No. 656 (Sub-No. 1), Investigation into the Practices of The National Classification Committee. NASSTRAC and other commenting parties (including the Department of Justice) regard antitrust immunity as unnecessary for pro-competitive activities of NCC. However, anticompetitive activities, including increased commodity class ratings that often lead to increased freight rates, are facilitated by antitrust immunity. Immunity from the antitrust laws for collective activity by carriers with such an impact on rate levels is inconsistent with deregulation and marketplace competition. Any shipper who has been caught in the web of the NCC re-classification actions can understand the impact of this issue.
- And “minor” issues can have a big impact on your transportation budget. Consider IATA resolution 502 calling for a change in the weight/volume calculation for air freight. The Universal Cargo Screening Act continues to be considered in Congress calling for 100% inspection of all containers. If that doesn’t get your attention you’re suffering from sensory overload.
What should you do about all of this? Why should you bother to read the NASSTRAC newsletter, or get involved in this organization? The answer is as simple: Education, Advocacy, Connections, and Solutions. Why bother to get involved with NASSTRAC or any other worthy trade association? You or your company simply can’t afford not to.
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Robert Engle, Vice President of Supply Chain for Dole DFV and one of NASSTRAC's newest members, recently spoke at
NASSTRAC's seminar on globalization about his team's challenges and opportunities. Here are his views on the topic.
Dole Foods: Fresh Perspectives on International Shipping
"If you're involved in managing international shipping activities, you face more challenges than ever," says Robert Engle,
Vice President of Supply Chain for Dole DFV, whose parent company is the world's largest producer and marketer of high-quality
fresh fruit, fresh vegetables and fresh-cut flowers. |
And he should know. Dole is the fourth largest U.S. importer of products using ocean containers, importing more than 17,000
FFE (40-foot equivalent units) or about 21,000 containers each year. This volume's foundation is based predominantly on
products coming from Asia through the use of 3PLs. Engle noted that Dole also imports approximately 104,000 reefer containers
of bananas and pineapples annually on vessels through marine terminal facilities managed and operated by Dole.
Dole utilizes other port operations on both coasts, while also managing marine terminal facilities in both Louisiana and
Florida . Engle emphasizes that there are many challenges facing ports that ultimately impact shippers—ranging from
congestion and resulting delays, long waits for trucks, limited hours of operation, and rail connectivity issues to security,
expanded screening, and overall rising cost.
Carrier and Government Challenges
Consolidation is changing the face of the industry. Engle notes that larger carriers are buying up smaller carriers, citing
examples such as Maersk and P&O, and Hapag-Loyd and CP Ships. He echoes a concern shared by many others: reduced carrier
choices can only mean higher rates.
There are other shipper concerns driven by carrier issues as well. For example, "free time" for freight has been reduced by
20 percent; demurrage has more than doubled; and there is diminishing uniformity between carriers, ranging from data integrity
and compounded service inconsistencies as a result of the usage of multiple brokers.
Couple this with government-driven challenges, and the international shipper faces additional issues, including the $7.4
billion Port Security Bill that is bringing increased scanning of cargo perceived as high risk; an enhanced "24 Hour Rule"
that requires inspection 24 hours before loading; and C-TPAT compliance.
How has Dole handled such challenges? In response to C-TPAT, Dole now sends advanced ship notices to both Customs and its
broker, and performs security surveys with all partners in its supply chain. Of course, Dole takes logical steps that every
shipper should take, such as maximizing cube and weight; consolidating its number of brokers, ocean lines and carriers used;
and educating political leaders on issues that can impact their operations.
What Can Shippers Do?
"First, be proactive," Engle advises. "Make sure your suppliers are compliant, protect your data chain, and send samples and
information on new items to Customs before your first container arrives. This will go a long way in educating them about what
you're doing."
"When it comes to your carriers," he continues, "demand more and work closely together." He recommends that shippers contract
specific equipment requirements and clearly come to agreements on who pays for what; and clarify when your free time starts,
how much you will be given, and who has what responsibilities on both the parts of the carrier and the port. Also make sure
to clearly outline the process (which includes such areas as security and data flow), minimize the use of brokers for all
shipments, and take steps to ensure that your shipment data integrity is maintained.
Dole is committed to supplying the consumer and its customers with the finest, high-quality products. Managing its supply
chain—including a significant volume involving containerized imports—is a foundation to making this corporate mission statement
a reality.
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