The Real Value of Outsourcing to Achieve Process Improvement
Some have talented management teams. Others have outstanding products or services and famous brands, and some use trendy marketing tactics consumers can’t resist. But all thriving companies occupying topmost positions in their business arenas share one characteristic that keeps their market share positions secure and shareholder value growing.
They join forces with outsourcing service providers. But instead of using outsourcing just as a tactical means of driving costs and inefficiencies out of a business process or function, they use outsourcing relationships to strategically enable their capability of doing business better than their competitors. Because of the value that can be achieved through such a strategic impact, outsourcing is now an essential element in leading companies’ business models.
Atlanta-based manufacturer, Georgia-Pacific, is one such company. It overshadows competitors vying for highly demanding retail customers because at the crux of its exacting, yet variable, environment is a strategic supply chain outsourcing relationship.
Behind a Dam is a Reservoir
The nature of business for Georgia-Pacific (GP), the well-known paper products manufacturer, overflows with king-sized warehousing and distribution headaches. Like water – a resource that needs a dam in some areas to ensure its ready supply – just-in-time delivery of GP’s products to its customers depends on the dynamic services of its supply chain partners.
That’s because GP’s customers aren’t just buying paper towels, tissue paper or office paper. They’re buying a relationship with the manufacturer, which includes assurance that GP will provide large quantities of its paper products within very short delivery timeframes. Because sales of this type of product are largely driven by timely marketing promotions, it’s not unusual for customer orders to necessitate deliveries to hundreds of retail locations in two days – and sometimes even in less than one day.
GP isn’t outsourcing to buy just an efficient warehousing or distribution process. It’s buying a strategic relationship that solves its business dilemmas and enables the manufacturer to stride ahead of its competitors in the congested northeastern region of the U.S. – a major market for GP’s paper products division.
The northeastern market, says Michael Roache, GP’s manager of distribution for consumer products, is tough. “Even though we are the largest tissue manufacturer, we seek to differentiate ourselves through service. We ship direct to our customers to keep costs as low as possible and provide optimum service.” The ability to do that – and meet unique customer requirements and tight delivery windows – he states, is because of Transport Systems Inc. (TSI).
Solution Provider Partner
“I know no other service from TSI except high-level service,” adds Roache. “I never, ever expect anything other than that. They truly are solution providers for us. Before TSI, we went through a series of local providers but were failing miserably.”
Their 15-year relationship covers warehousing, distribution and other supply chain services, which vary for different businesses or facilities. All are contractually handled through addendums to an overall master agreement.
TSI is a recipient of GP’s Warehousing Partner in Excellence Award, and Roache says it’s because TSI is “truly an extension of our operation.” He continues, “The neat thing about those guys is that in other areas of the country I will have to do a fair amount of analytical work to solve a distribution problem. But in the Northeast and Mid-Atlantic, I know that all I have to do is talk through the issue with the TSI guys and – on their own – they will provide some ideas on how we should solve that problem. Sometimes their ideas are things we have not thought of.” This is added value, far beyond the normal on-the-spot services solutions that TSI is contractually bound to provide.
When TSI, for instance, bid on a GP Request For Proposal to establish a distribution center in the Hartford, Connecticut region for rush-order delivery and safety stock, the service provider’s solution went beyond GP’s requirements and deepened relationships with GP’s customers.
“When we jointly explored GP’s customer issues,” explains Roache, “we realized the advantage of having TSI visit our customers with us. TSI doesn’t stand at the table as an equal with GP, but our customers understand that TSI is operating as GP. The advantage of having TSI at the table with the customer is that they hear things first-hand from the customer’s point of view instead of us explaining it to them later. It’s in GP’s best interest to do this because both GP and TSI are there to serve our customers.”
In another instance, GP sought solutions that addressed removing as much cost as possible from a distribution center in order to achieve a lower delivery price for shipment from the manufacturing center direct to the GP customer. GP solicited TSI to participate on a team to come up with the best solution. “The ironic thing,” says Roache, “is that the sole intent was really to take money out of their pocket and put it back in ours. And they did help us do that. So why did they do that? They are very quick to say they have done business with us for 15 years. And sometimes things go our way. But TSI knows the key is to provide service and foster a healthy relationship because we need them and, oftentimes, things go their way.
Roache says the secret of their success is that both companies share the same values – integrity, excellence in all they do, focus on customers, and treating people with dignity and respect. All of those values require patience and flexibility.
He admits GP presents difficult challenges for TSI – not the least of which is three years of acquisitions and divestitures as the manufacturer has grown and evolved its competitive strategies. Besides having to learn how to work with new people with each GP acquisition and divestiture, TSI was also impacted by three IT system changes at GP.
“Throughout all of that minutia, they continually serve our own customers, meeting each demand. With each change at GP over the last five years, TSI has been really good a creatively changing with us,” praises Roache.
The strategic value for GP, produced through this outsourcing relationship is, perhaps, best summed up by Roache’s comment that he often refers to TSI not as “consultants” but, rather, as “resultants – because they execute. The results speak for themselves.”
Lessons from the Outsourcing Journal:
- Initiatives that strategically affect the enterprise’s competitive advantages in differentiating itself in the marketplace produce the highest value in an outsourcing solution, much more than reducing costs or streamlining processes.
- For a manufacturing company, warehousing, distribution and other supply chain functions are essential components of success; however, the infrastructure required for such functions is a costly investment for a manufacturer and is best handled through leveraging economies of scale and expertise of an outsourcer.
- Outsourcing enables a company to maintain agility as it grows, especially through mergers, acquisitions and divestitures.