Does outsourcing add value?

Outsourcing has become a mainstay of global business. Companies routinely subcontract supply chain functions, such as manufacturing and logistics, to third-party vendors in the belief that outsourcing can reduce costs and improve service. But the practice of looking outside the four walls for improvements may be starting to fall out of favor. In some cases, companies are finding that it may actually be more cost-effective to bring outsourced jobs back in-house.

This edition of CSCMP's Supply Chain Quarterly describes how one manufacturer, the clothing maker Joseph Abboud, did just that. Two consultants who worked on that project—Jeff Boudreau and Brad Sampson of XCD Performance Consulting—detail the reasons why the company chose to terminate part of a successful arrangement with its third-party logistics (3PL) provider and "insource" its domestic distribution operation.

One reason for this move was the company's desire to embrace "lean" practices. The lean philosophy seeks to remove any waste, including any activity that does not add value, from the supply chain. For Abboud, outsourcing fit that description. Shipping finished goods from the plant to the 3PL in another state meant extra transportation costs and extra prep work. Relocating distribution back inside the plant allowed Abboud not only to save money but also to process and ship orders the same day for improved customer service.

For years, third-party logistics companies have trumpeted their ability to cut costs. But Abboud found that it could reduce costs by removing the 3PL link in its supply chain. Its experience suggests that in the future, when companies seek to optimize their supply chain design, they should re-examine the role of outsourcing. They may find that contract logistics and manufacturing run counter to lean practices and principles.

Many companies, of course, are still outsourcing their operations and will continue to do so. Only time will tell whether Joseph Abboud's decision constitutes a supply chain aberration or represents a broader swing of the pendulum toward insourcing.

Either way, I hope you will agree that The Quarterly continues to be a source of interesting reading that pushes you to rethink your notions about the scope and contour of your own supply chain.

As Socrates once said, the unexamined life isn't worth living; those are good words to live by in both our personal and professional lives. If we as supply chain professionals are to become better at what we do, it's important that we regularly reexamine our assumptions and practices— at least once a quarter anyway.