Any company doing business on a global scale knows what a hassle supply chain management can be. Everything from procurement to receiving becomes a difficult task when multiple currencies, customs departments and logistics are considered. And it's that difficulty that drove Hong Kong-based global logistics management company, United States Consolidation (USC), Ltd., to look to an outsourcing supplier to ease the pain of supply chain management (SCM).
USC chose to outsource supply chain management from the beginning. Even before launching in 1996, USC chose to use an outsourced solution from LOG-NET, Inc., a Little Silver, New Jersey-based supplier. LOG-NET provides USC with the ability to manage shipping logistics for global shipments.
Maureen Saul, USC's vice president of logistics and marketing, says being able to manage purchase orders, vendors, product flow and delivery dates on a documentation level helps the company ensure its orders are received and fulfillments are met in a timely manner. LOG-NET also provides a Web portal for USC employees and customers so they can access necessary information from anywhere in the world. This makes it easier to manage logistics, regardless of location.
"This is an ideal solution," says Saul. "It could be done in-house, but why? The cost to implement and run this kind of application would make it less valuable." In addition, its relationship with LOG-NET has helped USC build more robust offerings for its customers.
The Importance of Project Managers
Understanding the flow of data through your supply chain is essential to making an outsourced SCM solution work, says Tom Wyville, director of sales for LOG-NET. "Often, companies have their processes mapped effectively. They know where the data is coming from and where it needs to be sent," he says. That is a step toward making the SCM solution successful, in his opinion. However, having a data map and understanding the flow of information isn't enough to create a successful outsourcing solution, says Wyville. "It's also useful to have a designated project manager to ensure that certain milestones are met throughout the deployment process."
Those milestones, for example, might be to have all of a customer's service provider's data up, tested and operational by a certain date. "This helps guide the project," he says. Additionally, the supplier should make a project manager available on its end to ensure that the organization is represented.
John Strother, director of Inventory and Logistics for Seattle, Washington-based Recreational Equipment, Inc. (REI), a retail organization, knows the value of having someone guide the implementation of outsourced SCM and using milestones to gauge progress. REI chose to outsource its SCM to St. Paul, Minneapolis-based SPS Commerce.
Strother says REI selected SCM because all of its top 500 targeted vendors were using SPS's software. Without project managers on both sides, Strother says that getting all of those vendors standardized on SPS's system would have been impossible.
REI examined its supply chain and determined the company was spending a lot of money shipping heavy items to distribution centers and then to each of its 60 stores because of their weight. The company determined that it would be more economical to ship directly from suppliers to each store.
The problem that REI faced, however, was that many of the stores didn't have good receiving staffs. In addition to implementing the supply chain management, REI also needed to implement a way to advise stores they would be receiving inventory shipments and sharing their tracking numbers before they left the dock. Unfortunately, many of the stores were too small to install and operate their own electronic data interchange (EDI) systems, which are typically used to manage such systems.
Achieving Something REI Could Have Never Done On Its Own
That's where SPS surprised REI. It provided the logistics for shipping directly from vendor to store as well as the technology necessary to move even the smallest vendors to an EDI system. "SPS enabled us to do something that we could never have done on our own," says Strother. "We deal with many small and medium-sized enterprises. SPS allowed us to bring those vendors along rapidly. Once everyone is in the same environment, it simplifies the distribution process tremendously."
Although REI has had the outsourced SCM system in place for less than a year, Strother says it is already providing benefits. "We've reduced the labor in our retail stores as well as the confusion that comes with charge-backs and over-shipping. Our initial projection of less than a one year payback on investment in terms of labor reduction will come to pass," she says.
Another pleasant surprise is the cost is far less than the company expected. Because the service that REI chose was needed by all the vendors, those who did not have it assumed part of the cost of the monthly subscription fees to SPS. "In this solution, the supplier pays the cost," says Jim Frome, executive vice president and chief strategy officer for SPS. "The price of the service is $50 per month, and those vendors can use it with anyone they choose. It puts them in a position to benefit on both sides of the equation."
Fortunately, says Frome, showing the value of outsourced supply chain management in an ROI equation is easy. "The outsourcing model is cheaper, faster, and sometimes better than trying to manage all the logistics of supply chain in-house," he says. "In-house you have a capital outlay for software, maybe hardware and then you have to hire people permanently to operate the SCM system." Outsourcing requires only that you have access to the Internet. And Strother says that the simplicity is well worth REI's investment.
Lessons from the Outsourcing Primer:
- Outsourced supply chain management gives you the ability to manage orders and fulfillment from the purchase order stage through delivery.
- A designated project manager ensures that project milestones are agreed upon and met during the process of integrating the supply chain management solution.
- Outsourced supply chain management can potentially reduce costs not only in labor, but also in other expenditures such as charge-backs and overstocking.
- Having all vendors standardized on the same system is essential to making outsourced supply chain management work. The outsourcing supplier will often help add smaller vendors to the system.