Some companies never consider outsourcing or eliminate the strategic option of outsourcing too early in the supply chain strategy development cycle due to reasons that can be just as inaccurate or inappropriate as poor reasons to outsource. In-sourcing rationale may include:
When pursuing a strategy of outsourcing, a company must objectively evaluate its operations relative to outsourcing options. An outsourcing evaluation team should include members from the supply chain organization, finance or accounting, and sales. The evaluation and decision should consider cost analysis, performance gap analysis, financial opportunities, and suitability of operations for outsourcing.
Cost analysis is critical prior to engaging in an outsourcing process for logistics or supply chain operations. The team must evaluate warehousing costs for space, labor, and technology relative to activity profiles. Detailed analysis of inbound and outbound transportation cost should be summarized by location and mode. The team must identify costs of customer service operations and inventory investment that can also be impacted by an outsourcing option.
Identifying and understanding all of the operational costs is important as an input for making the decision to outsource logistics operations. Recognizing regional differences and understanding the business, product, customer, or facility drivers that influence cost performance is important to developing functional requirements and evaluating future vendor proposals. Once all of the costs are identified and documented, the team should project which costs will be transferred to potential service providers and which will be retained after outsourcing. Some providers may propose different levels of service or optional services that can transfer or defer different cost components. Cost analysis is an important initial step of the total outsourcing analysis and justification process.
Look for the future discussion of gap, financial structures, and suitability analysis and check out Part 1: Outsourcing Motivations.
As of September 8, 2020, Crimson & Co (formerly The Progress Group/TPG) has rebranded as Argon & Co following the successful merger with Argon Consulting in April 2018.