Is Managing Outsourcing Relationships a Core Competency?

The simple approach to determine what to outsource versus what to keep in-house is to assemble a strategic team to define what your core competencies are or need to be moving forward. If something is deemed a core competency, then you keep it in-house; everything else you outsource. Or as management guru Tom Peters once put it, “Do what you do best and outsource the rest.”

But when it comes to outsourcing supply chain management functions, is defining core competencies enough?

I asked Mike Glodziak, President at LEGACY Supply Chain Services, that question in a recent episode of Talking Logistics, and his response surprised me:

The notion that “we’re going to outsource an activity that is non-core for us and we’re going to keep the core competencies inside”…I would really challenge [that], and I’ll give you a couple of examples. We have the good fortune of working with one of Canada’s largest retailers, and we have the good fortune of working with one of the largest retailers [in the US], and if I had a representative from each of those customers here and asked them what their core competency is, first and foremost, they would tell me that it’s retailing, there’s no doubt about that. But I think they would also go on to say that one of their core competencies is supply chain. Both companies are incredible, strong supply chain operators…they get it, they operate multi-billion supply chains, [yet] both of those companies outsource. So, we get these larger companies now that would admit to you one of their core competencies is supply chain, and yet they are outsourcing supply chain.

So the wrinkle I want to add is that, in those two examples, sure they’re great retailers, sure they’re great supply chain operators, those are absolutely core competencies, but the number three core competency that both of those organizations have is…[they] are great at outsourcing. They would tell you that [outsourcing] is a core competency, so that’s why they’re outsourcing their supply chain.

In other words, adding to what Tom Peters said, do what you do best and outsource the rest, but only if creating and managing outsourcing relationships is part of what you do best. If you don’t have the right skills to create and manage an outsourcing relationship, it doesn’t matter whether the function you outsource is “core” or “noncore” to your business, the end result will be the same: failure.

So, what core skills do companies need to successfully create and manage outsourcing relationships? Watch the short clip below for Mike’s response, where he talks about the important role of a relationship manager (among other things).

I also asked Mike about a topic I wrote about recently — that is, about companies not outsourcing or bringing operations back in house because they want to stay in control. For those companies, outsourcing implies less control. Is that perception or reality? Can you outsource and still be in control?

My answer is that it’s perception. There are so many successful outsourcing solutions and relationships out there, I’m going to tell you it’s perception. I think the biggest challenge, or what we try to warn new clients about, is the notion that just because you’ve outsourced your warehouse facility, or perhaps a transportation lane, or your complete supply chain, it doesn’t mean that you’ve outsourced responsibility for your supply chain…you still have responsibility for your supply chain, you still have to understand your supply chain, and absolutely, you still need to have control of your supply chain.

When you’re across the table from a potential new client and you’re talking about outsourcing, they’re expecting that they are going to cut all their cost, and that’s not the case, you still need to have that in-house expertise, and again, the successful relationships, the ones we do very well in, [customers] still have a lot of in-house supply chain expertise.

Mike when on to talk about the important role metrics play and how “if you put the foundation in place, and you put the operational, tactical, and strategic measures well-cemented in the foundation, then you don’t lose control, and [the outsourcing relationship] works very well.”

I encourage you to watch the rest of my conversation with Mike for additional insights on this topic, including Mike’s thoughts on how to measure how well an outsourcing relationship is going, and what to do if expectations aren’t being met on either side.

After you watch, post a comment and tell us what you think: Is managing outsourcing relationships a core competency?