From the smallest solopreneur to the biggest billion-dollar brand, the same supply chain question crops up again and again: what can we do ourselves and what operations should we contract out?
Kraft Foods outsourcing its transportation operations shows that even company’s that you might assume can do it all sometimes see greater value in getting an outside expert in to handle key operations.
The nationwide company will divest its private fleet before the year is out, passing on those key distribution tasks to commercial and contract carriers. As a Kraft spokesperson succinctly put it, the move is designed as “part of our broader integrated supply chain focus on supplier integration.” Even more simply? Some of our logistics partners do this better and more cost-effectively than us.
Questions to Consider When Outsourcing
For Kraft Foods outsourcing is just one of many options available. But what about the small and medium sized businesses (SMBs) that make up most of the country’s economy?
SMB budgets are obviously smaller and need to be stretched further to compete effectively. While experimentation and improvement is important to every supply chain, SMB owners must be even more certain that the logistics decisions they make are going to reduce costs and/or improve productivity.
If you’re in that position and wondering whether certain portions of your supply chain activities would be better off in the hands of a trusted supplier, ask youself the following questions:
- What are the costs? – Consider every element of the operation and what it costs your business to perform. Compare the price and value (note the difference) of what your own internal team would provide versus a third party.
- How do those costs vary? – There are more moving parts when you undertake your own logistics. While this gives you individual insight into every detail, it also means that you’ll pay the price for every error, cost increase, or new employee. When you outsource operations, you can often limit your business exposure to such changes, or lock in a fixed price entirely.
- Which is more efficient? – Only your own employees can truly know your business inside out, but a third party provider lives and breathes their own industry and will have unique insights to help you improve. If greater efficiency is a key objective, outsourcing might provide not only a supplier but also a consultant for the same price.
- What are your key performance indicators? – We’ll make this point again below, but you can only manage what your measure. Having KPIs available to compare performance of internal and external operations will help to make future decisions about who is best suited to the task at hand.
- Are you able to apply new technology and methodologies easily? – Your business may be on the cutting edge of technology, but are you able to frequently make large investments to improve your supply chain. For some SMBs these changes need only be minimal and the answer is yes, but often the best way to take advantage of new technology and supply chain methodology is to find a partner whose business it is to stay on top of these things.
The proof is always in the performance, so any outsourcing your business undertakes should be measured from the outset. Hold suppliers to even higher standards than you would expect from your own operation. The best aren’t afraid to report, review and improve (if we do say so ourselves!)