There is always a strong temptation to consider that doing it internally is the only option. The converse, however, is never always true.
Supply chain managers are under constant pressure to reduce costs, increase flexibility and manage risk. All this while operating facilities, managing day to day activities and occasionally making capital expenditure decisions. In amongst this, the following questions keep coming up:
- Do we have our capital tied up in the right assets? Could freeing it up help us grow?
- Are we keeping up to date with current regulatory and chain of responsibility practices?
- Are our make/buy decisions well founded and able to support our business strategy?
- Will we be able to manage the fluctuations in demand for warehouse space and direct labour?
- Are we spending our time and effort on the right things?
- Do we do operate at best practice, or could someone else do it better for us?
Outsourcing operational activities, be it design, manufacturing (in whole or part), warehousing, distribution or customer service, is not only a significant strategic consideration, but one that could yield substantial bottom line benefit. Outsourcing can:
- Directly reduce spend on operational and manufacturing activities
- Provide access to best in class services, technology and quality
- Reduce the need to increase capital to expand throughput
- Reduce the overhead associated with compliance cost
- Deliver flexibility in seasonal or dynamic demand businesses
The decision to outsource (or insource for that matter) requires the consideration of a number of factors that will vary from business to business and outsource opportunity to opportunity. GRA starts its approach to outsourcing by considering the whole-of-business context: what is the nature of the business, what are its aspirations, what do its customers and stakeholders expect? We understand the factors that are unique to the business and identify which activities a business has an appetite to outsource and those that are truly “mission critical” and cannot be outsourced. We challenge the “uniqueness” myth – many firms clam their activities are so particular that no one else could possibly do them. We consider the phase that a business is in, and help it to understand the benefits and detractions of outsourcing while the business is in – or transitions from – that phase. We can assist in:
- Understanding the internal capability of an organisation: how well it is geared to operating the elements of the supply chain in outsourcing consideration
- Identifying viable candidate activities for outsourcing or insourcing consideration
- Identifying the trade-offs and the significance of the trade-offs between insourcing and outsourcing
- Understanding and quantifying the commercial and IP risks with potential outsourced activities
- Developing cost models that outline the capital and cash-flow requirements of outsource/insource choices
- Writing specifications of outsourced activities.
- Ultimately, we provide options, costs/benefit analyses and risk profiles to enable an informed decision on what to outsource/insource and when.
The following are outcomes of this approach:
- A clearly defined logistics outsourcing or insourcing strategy that has been directly informed by the business strategy and direction
- A considered review of internal and external capability and an assessment of what is most viable option
- A recommendation of an outsource/insource plan
- A clear view of the financial implications of the outsource/insource choices
The benefits of this approach include:
- Confidence that the process that derived options and recommendations was robust and considered all business factors and support the business strategy
- A well-defined statement of intent that can be communicated internally or taken to market
- A business case that is well founded and well understood
- Reduction in operating costs – typically in the range of 5-8%
– BACK TO CONSULTING
"We saved $14 million in six months... here are the graphs. We're used to being promised these kinds of numbers; we're just not used to having them delivered."
– Wing Commander, Royal Australian Airforce (RAAF)
- 20-40% inventory investment reduction
- increased service levels ranging up to 99.9%
- 10%-15% reduction in supply chain operating costs
- 5%-20% spend management savings
- the ability to fund business initiatives from operating cash flow (OCF) improvements
- improved return on capital employed (ROCE)
- a minimum 3:1 ROI (10:1 to 30:1 typical)