One of the competitive advantage strategies General Motors North America GMNA regularly deploys is outsourcing, and it has plenty of experience analyzing which outsourcing supplier’s capabilities and solutions best fit its needs.
Even so, when GMNA signed a contract to outsource the management of its inbound transportation functions to FedEx Supply Chain Services (FSCS), it was the start of something big.
“They have gone beyond our wildest expectations in service,” exclaims Ellen Fecher, manager of Powertrain GMNA Logistics. Indeed, FSCS has earned the prestigious GM Supplier of the Year Award for three consecutive years.
Choosing the Outsourcing Supplier
GM Powertrain is responsible for manufacturing the engines and transmissions for GM vehicles made in North America. When the Powertrain Warren plant was identified as a plant where GM would embrace lean manufacturing principles, executives from Powertrain and Powertrain Warren visited GM’s Service Parts Operations (SPO) to find out the results SPO had achieved by using a third-party logistics supplier to expedite transportation issues.
Fecher recognized the greater benefits GM could receive from economies of scale, so she determined the best strategy was for all of Powertrain to work together and use one third-party logistics supplier for the entire group.
GM evaluates potential suppliers on weighted factors in four primary criteria: overall quality, service, technology or innovation, and price. FSCS won in that scoring, but Fecher says two other FSCS operational characteristics “really put them over the top.”
Whereas most suppliers wanted to run the freight on their equipment, FSCS would bid out every piece of the route to second-tier carriers. This was attractive to the auto giant because it had existing relationships with niche carriers. Best of all, FSCS was the only supplier that would use origin-based route design (instead of destination-based).
The Outsourcing Services
FedEx Supply Chain Services now plans and manages the inbound transportation for more than 1500 product suppliers into 26 GM Powertrain engines, transmission components,s and foundry plants, as well as moving the freight between the Powertrain facilities.
Services encompass all product freight (anything that goes on an engine, transmission, or casting) and returnable container pickups and deliveries, as well as all second-tier carrier activities (including selection, procurement, certified loading, freight payment, and performance reporting). Some of the freight is moved by air, but truckloads and milk runs move most.
FSCS employs a transportation manager in each of the 26 GM Powertrain plants. Fecher says the relationship between the two companies is so integrated that it’s difficult to tell whether someone is a FedEx or a GM employee.
The transition phase lasted almost a year. Operational teams, with representatives from both companies, met weekly to go through the issues, work together to solve problems, and jointly bring new ideas. FSCS implemented the outsourced process in phases based on its origin-based route.
Responsible for moving material in the Midwest (the lean vision territory), FSCS tackled the project clockwise along the route – first eastern Michigan, then western Michigan, Ohio, Indiana, and on around to Ontario. “Each time they implemented a new piece or area, we had a review,” recalls Fecher. “Did it go well? What didn’t go well? We reviewed each time before giving them the green light to go on to the next area.”
The Benefits of Outsoucing
In support of lean manufacturing principles, FSCS must do it all in the least costly and most expeditious manner. GM’s strategy of outsourcing this transportation function is working well. FSCS holds a 99 percent on-time performance record and has achieved significant savings for GM.
Fecher comments that the complete visibility of products and information through GM’s supply chain pipeline has been an unexpected value. The supplier also recently assumed added responsibility for scanning all the freight and updating GMNA’s advance shipping notifications.
To ensure the parties will collaborate to continue to meet GMNA’s lean manufacturing goals, their outsourcing arrangement includes a gain-sharing component. “It’s an incentive to continue to reduce overall costs,” explains Fecher. “We’re always changing what we want. We wanted on-time performance, for instance. Now we’re looking at reducing the number of route miles they are running.” Both parties meet twice a month for an operational meeting, followed by a cost savings meeting.
Both parties believe it’s an outstanding outsourcing relationship. “They brought the IT that we don’t have and are not willing to invest in. And they have helped us do things that we couldn’t have done as quickly,” says Fecher. “We wouldn’t want to get out of this relationship!”
Lessons from the Outsourcing Journal:
- Outsourcing transportation functions allows a buyer to leverage the supplier’s strengths in economies of scale to achieve objectives such as on-time performance and cost reduction.
- A third-party logistics supplier manages the transportation function. It may choose to use subcontract arrangements for portions of the route or perform the transportation services along with the management component.
- A gain-sharing mechanism in the outsourcing contract is a highly effective incentive for continual cost reduction and improvement of services.
Questions you should consider as you read this article
How does GMNA’s outsourcing strategy align with industry trends?
In recent years, the automotive industry has witnessed a shift in supply chain strategies. How does GMNA’s decision to outsource its inbound transportation functions align with these broader industry trends? What advantages does this outsourcing approach offer in the context of evolving automotive supply chain dynamics?
What specific evaluation criteria favored FSCS as the outsourcing partner?
The article mentions that GM evaluates potential outsourcing partners based on factors such as overall quality, service, technology, and price. Could you elaborate on how FSCS excelled in these areas, providing a more detailed understanding of why they were selected over other suppliers?
How has FSCS’s approach to managing transportation contributed to success?
The article highlights FSCS’s unique approach, including bidding out routes to second-tier carriers and using origin-based route design. Could you delve into how these operational characteristics have contributed to FSCS’s success in managing GMNA’s transportation needs?
What role does collaboration play in this outsourcing relationship?
The article mentions the integration and collaboration between GM and FSCS. Could you provide specific examples of how this collaboration has enhanced the efficiency and effectiveness of the transportation functions?
Can you quantify the benefits achieved through this outsourcing partnership?
While the article mentions significant savings and a 99% on-time performance record, could you provide more detailed insights into the financial and operational benefits GMNA has realized as a result of this outsourcing arrangement?
How does technology facilitate optimization in inbound transportation?
In today’s digital age, technology is crucial in supply chain optimization. Could you elaborate on the technological aspects of FSCS’s transportation management and how it contributes to the success of the outsourcing partnership?
What are the fundamental principles of lean manufacturing reflected in this relationship?
Lean manufacturing principles prioritize efficiency and cost-effectiveness. How does GMNA’s outsourcing arrangement with FSCS align with these principles, and what lessons can other manufacturing companies learn from this example?
What are the potential risks and risk mitigation strategies in outsourcing?
Outsourcing, while beneficial, can also come with risks. What are the potential risks associated with outsourcing transportation functions, and how has GMNA implemented strategies to mitigate these risks in its partnership with FSCS?
How does the gain-sharing mechanism drive continual improvement?
The article mentions a gain-sharing mechanism in the outsourcing contract. Could you provide more details on how this mechanism works and how it serves as an effective incentive for both parties to reduce costs and enhance services continually?
What does the future hold for this outsourcing relationship?
Looking ahead, what are the key factors that GMNA and FSCS should consider to sustain and further enhance the success of their outsourcing relationship? How do they adapt to changing market conditions and evolving supply chain dynamics?
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].