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Should Companies With Supply Chain Management Core Competencies Still Outsource?

Why would a company that already excels in supply chain outsourcing turn to a third-party logistics provider for help? As one of the more common questions that come about when discussing supply chain logistics, it’s important to understand why any company, large or small, would choose supply chain outsourcing in the first place.

In this four-minute video Adrian Gonzalez interviews Mike Glodziak, president of LEGACY Supply Chain Services, who gives his take on why outsourcing has become a popular core competency for some of North America’s largest retailers.

 

Video Transcription

 

Adrian: When I talk to companies about outsourcing and you read a lot of articles on the whole topic kind of the rule of thumb, the simple approach is in terms of the determining what do you outsource versus what do you keep in-house is to kind of assemble a strategic team and define what your core competencies are, all right? And they are what they need to be. And then if something is deemed a core competency, well, that’s what we keep it in-house and then everything else we kind of outsource, right?

Is the finding core competencies enough? Is there a better approach? What are your thoughts on that?

Mike: I tell you that’s a good question. That’s a super interesting conversation for me. We could talk about that one all day. You know, I don’t think it is enough. I’m going to put my twist on this a little bit, but I don’t think it is enough. If we go back to what I said earlier, the position of outsources from where I sit from my experience out there it’s really about one of four things.

It’s about cost. It’s about flexibility. It’s about what you’re going to allocate your capital to. And potentially it’s about improving your service levels. The notion of, and I know this has been going quite a while now, but the notion of we’re going to outsource that activity that’s non-core to us and we’re going to keep the core competency inside. We’re going to in-source that. We’re not going to outsource that.

I would really challenge that, and I’ll give you a couple of examples. We have the good fortune in Canada of dealing with one of Canada’s largest retailers. We have the good fortune in the U.S. of dealing with one of the U.S.’s largest retailers. If I had a representative from each of those customers online with us here, and I asked them what the core competency is, first and foremost they’d tell me it’s retail, and there’s no doubt about that. And I think they would also go on to say to us that one of their core competencies is supply chain. And both these companies are creditable, strong supply chain operators. There are no flies on them. They get it, operate multi-million dollar supply chains.

So both of these companies outsource. So we get these larger companies now that would admit to you that their core competency is the supply chain, but yet they’re outsourcing supply chains. When you ask the question or when you talk about do you outsource non-core competencies, probably so, but we also see some customers out there outsourcing their core competencies. So the wrinkle I want to add to it and this is our take on it, that in those two examples for the great retailers, sure, their great supply chain operators those are absolutely core competencies. But the number three core competency that both of these organizations have is their outsource core competency. And I think that is a big conversation.

Both of these organizations are great at outsourcing. They would tell you that that’s a core competency. That’s why they’re outsourcing their supply chain. So I know that sounds like a lot of doubletalk. It’s worth thinking about and we’ll talk about it some more, I’m sure. But those that are good at outsourcing from a client’s perspective have an absolute core competency for outsourcing.

 
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