The term "outsourcing" has gone through an interesting evolution.

Ten years ago, many viewed outsourcing as a dirty word – as in the context of American workers losing their jobs. Then outsourcing was something most organizations practiced to one extent or another, but not all that effectively.

Next it became a standard practice for most companies, realizing that they could grow more successful and client-centric by focusing on their core competencies and leaving the experts to focus on areas of their operations that were, well, better left to the experts.

Now, in these shifting economic times, I see many firms who have outsourced operations taking an even closer at their outsourcing providers in an effort to reduce the number of providers they are dealing with, trim costs and provide the best customer satisfaction.

I know of many positive Logistics Service Provider (LSP) stories about companies that outsourced functions and achieved significant cost savings from outsourcing advantages, as well as greater speed, flexibility and customer satisfaction.

On the other hand, I have also heard some horror stories in which the client only focused on cost and tried to tell the LSP "how" to do their job as opposed to telling them "what" needed to be done. This, plus other broken concepts of outsourcing, has resulted in major disasters.

As we roll with the economic punches, the supply chain outsourcing relationship has taken on an even more important role, with organizations reviewing contracts and searching for more value and benefits. Cost savings and realizing additional value from an existing outsourcing situation is all about the relationship you have with your existing outsourcing provider. 

As we’re really seeing these days, that relationship can be strained by the volatility in business climate and economic cycles.

Here are some ideas on how to respond to change in ways that can help keep costs down. These points are from the book Logistics and Manufacturing Outsourcing: Harness Your Core Competencies, which I co-wrote with Steve Simonson, Bruce Tompkins and Brian Upchurch.

- Be willing to change direction if the situation warrants it.

 

- Gracefully incorporate changes when needed.

 

- Recognize that customer demands change over time and work to ensure that the agreement and initiative are adjusted accordingly.

 

- Support the implementation of process changes.

Although change is unpredictable, you can predict that it will happen to your business. In terms of the outsourcing relationship, document new requirements as they happen and how they impact the performance of both you and your provider. This will save time, effort and also cut costs in the long run.

You can accomplish this in a few steps.

1. First, have a documented plan to respond to change to give everyone a point of reference and avoid surprise.

2. Then, take that plan and put it into action, while monitoring performance and cost.

3. Next, both you and the provider should document what is going right during the change along with anything that is going wrong, while looking for ways to improve.

What are you doing these days to look beyond your outsourcing contract? How is your relationship with your outsourcing partner?

For more on not just existing outsourcing relationships, but how to develop new relationships and manage all aspects of outsourced functions, see the book Logistics and Manufacturing Outsourcing - buy the book with a 40 percent discount for blog readers.

Also see the podcast, Logistics Outsourcing Cost Reduction from the Global Supply Chain Podcast series.
http://www.tompkinsinc.com/podcast/transcripts/6-2-09_podcast20_logistics_outsourcing.asp  

So how did I do? More importantly, how are you doing? In my guest spot in this blog in November, I talked about the return of retail and predictions for holiday sales.

My optimistic prediction was a modest increase of 4% over Holiday 2008, and in the end, Holiday 2009 was slightly better than that with an increase of a little over 5%.

Even though retail sales appear to be on the rise, there is still a lot of apprehension about the retail sector.

Most experts agree that the retail sector will continue to rebound slowly and continue to face many challenges in 2010. Unemployment and underemployment is high, and living standards for Americans continue to erode, leaving little money for purchases outside of necessities.

In addition to the economy, there will continue to be issues in housing, banking, and health care. This combination results in a new consumer mindset referred to as the "New Frugality" which is also of the biggest retail supply chain trends. This recession has at least temporarily changed the behavior of some consumers, who are now holding on to their discretionary income and being very price and value conscious with their purchases.

This new frugality has manifested itself by consumers trading down in their purchases, less foot traffic in malls and shopping centers, and lower-cost purchases.

What are retailers to do? How do they combat the "New Frugality" and maintain profits and market share? As I see it, there are three areas where retailers can battle back, hold on to their customers and differentiate themselves from competitors. These are: merchandising, inventory, and online sales.

1. Merchandising: In the past, the merchandising mantra has been to put out as many products as possible and see what the consumer likes. This is no longer the case as consumers are more selective and cautious. Merchandising and product development decisions must be researched thoroughly and tested prior to new product launches and releases. A failed product launch could be catastrophic and cause serious damage to a retailer’s bottom line.

 

2. Inventory: In 2009, retailers cut inventory drastically and this, for the most part, had a positive effect on the bottom line. At first the cuts in inventory were done with little regard to minimizing stock-outs and maximizing customer satisfaction. This year, retail supply chain managers have the opportunity to get it right by not only minimizing inventory, but also making sure they have the right inventories in the right quantities in the right locations to meet customer demand.

 

3. Online Sales: Although foot traffic in stores has been down, sales on websites continue to rise drastically. The retailers who truly have a good grasp on online commerce are the ones who will differentiate themselves in the post recession marketplace. Strong web retailers like Amazon, Wal-Mart, and Target continue to improve their websites, fulfillment operations, and delivery options.

2010 will be a year of opportunity for success and failure in the retail sector. Those who focus on and adapt to the "New Frugality" of the post-recession consumer will be the winners. Those who ignore the customer and continue with "business as usual" will suffer and struggle to keep pace with those who do the opposite.

What do you think retailers should focus on in the coming year? If you are in retail, how are you handling the "New Frugality?"

As someone once said, Go!Go!Go!

Dan Avila, Partner, Global Supply Chain Services

How would you like to reduce your company’s electric bill by 30 percent, 40 percent or even 60 percent? Especially now in the middle of winter, I know that these huge bills are never a welcome sight.

But there are companies who are able to realize such savings -- taking tens of thousands of dollars off of their bills – by implementing sustainable practices. Not only do they save money, but they're helping the environment. In some cases, the federal or state government will qualify these companies for grants due to their sustainability efforts, which is a big incentive.

Sustainability within facilities and buildings is the topic of this fourth installment of a six-part series on sustainable business. Steve Simonson, a partner at Tompkins Associates, and I discuss a lot of great ideas, from what to do when building a totally new facility to what equipment can give you the biggest energy efficiency.

For example, lighting typically takes up more than half of a commercial property’s electric bill. There are proven ways to cut these costs through the use of more natural light and certain lighting products and scenarios. Installing energy efficient systems can also go a long way in reducing costs and promoting sustainability.

Even planting trees on the roof of the warehouse is an idea some have implemented to good use! What kinds of things are you doing to help "green" facilities and buildings and cut costs?

Be sure and listen to the podcast, Environmental Sustainability for Business: Facility and Building Sustainability, for many more details and some great ideas: http://www.tompkinsinc.com/podcast/transcripts/1-19-10_podcast34-facility-building-sustainability.asp

 

See more on greening supply chain resources and best practices.

 

Go!Go!Go!

Jim

Photo credit: Faith Goble

One’s first reaction to the question, "What to do with 2009?" may understandably be, "Forget about it." Say goodbye, gone and good riddance! Certainly I agree, but wait a minute. I do not think we can legitimately do this without further review, because, whether we like it or not, the 2009 data is a portion of our history, and we are forced to deal with it.

Dealing with it by just forgetting about it does not result in our closing out 2009, but rather it prolongs the agony we all felt in 2009.

Before I continue with this thought, let me pick up on a parallel track that helps me make this point even stronger.

Remember the survey showing that 75% of all men thought they were in the top 10% of all male athletes? Now, some of the women reading this will say yes, and the other 25% of the men will think they are in the top half. But, most men know this is because men interpret the question as being asked about men of their own age in the sport in which they perform best – not all male athletes in all sports.

Of course, some women may be rolling their eyes, and with good reason. Now let me go on to a related, but unfortunately, never-conducted survey that I also believe would ring true. I believe 75% of all the CEOs in the world (male and female CEOs) believe their organizations will be in the top 10% in growth in the coming years.

What do these two thoughts about 2009 data and 75% of CEOs seeing their organizations in the top 10% have to do with each other?

They both have to do with the base of data that we use going forward to conduct planning, budgeting, forecasting and target setting. Let me be even clearer by asking these 8 big questions:

1) Do you want to include 2009 (and possibly 2008 as well) data in your planning exercises going forward?

2) Do you want to include 2009 (2008) data when doing forecasting going forward?

3) How do you want to handle 2009 (2008) actuals when developing budgets going forward?

4) How do you want to handle 2009 (2008) performance when developing future targets for KPIs?

5) When planning the future, how do you want to handle the CEO's view of growth?

6) When forecasting future business levels, how do you want to handle the CEO's view of growth?

7) When establishing budgets, how do you want to handle the CEO's view of growth?

8) When establishing KPIs for the future, how do you want to handle the CEO's view of growth?

The answer to all these questions is the same, and it is not "Forget about it." 

The best possible answer to all of the above inquiries is: "with realism and thoughtfulness." Let me explain.

If, for example, your business performed in 2008 and 2009 in accordance with a long-term trends and your CEO has a good history of presenting achievable goals and your industry is not undergoing significant change, well then, stop reading this blog post, and go back to the bliss within which you live.

Now for the other 999 of us out of 1000, this blog post is for you and has in mind your goals of organizational excellence. You must proactively address "What to do with 2009?"

I strongly believe that in answering these 8 big questions, you must:

1) Adjust historical data to what would have been without the economic turmoil of the last 17 months prior to doing future planning.

2) Adjust historical data to what would have been without the economic turmoil of the last 17 months when doing forecasting going forward.

3) Adjust actual financial results to what would have been without the economic turmoil of the last 17 months when developing budgets going forward.

4) Adjust KPIs to what would have been without the economic turmoil of the last 17 months when developing future KPI targets.

5) Reflect upon the CEO's optimism when planning the future and filter this optimism with considerable sensitivity analysis so that you do the best job of planning for reality.

6) Reflect upon the CEO's optimism when forecasting the future and filter this optimism with considerable sensitivity analysis so that you do the best job of forecasting reality.

7) Reflect upon the CEO's optimism when establishing budgets and filter this optimism with considerable sensitivity analysis so that you do the best job of budgeting for reality.

8) Reflect upon the CEO's optimism when establishing KPIs for the future, and filter this optimism with considerable sensitivity analysis so that you do the best job of establishing realistic KPIs.

I am sure that you are noticing a pattern here.

So, "Forget About It" does not work to put 2009 behind you. In fact, if you do not proactively address the impacts of the Great Recession and make the appropriate adjustments, the evil of the economic meltdown of the last 17 months will continue to play havoc with your ability to perform.

Only after these adjustments are all made do I then believe the best thing you can do with 2009 is to just "Forget about it."

Go!Go!Go!

Jim

Other Resources

Great Comeback Executive Briefing: http://www.tompkinsinc.com/news/PR_2009/pr_102309.asp

Organizational Excellence: http://www.tompkinsinc.com/operations/organizational_excellence.asp

Bold Leadership Book: http://www.tompkinsinc.com/boldleadership/default.asp

Photo credit: lautsu

OK, it’s not exactly your father’s Oldsmobile, but we have recently discovered that companies with transportation sustainability initiatives are using many of the same old tools to gauge their success.

The Supply Chain Consortium’s new Transportation Sustainability Report found that a number of companies are using ROI or cost-payback analysis and life-cycle assessment – which are commonly used to measure capital expenditures – to evaluate their environmental initiatives.

These tried-and-true methodologies are not nearly as cutting-edge as some of the initiatives they’re measuring, so therefore they tend to be a very conservative predictor of success. Encompassing the total cost savings of a long-term sustainability initiative can be quite challenging. Consider using some new tools and keep the Oldsmobile in the garage.

Other green business tools used by companies we surveyed include environmental reporting and certification programs, environmental management systems, eco-mapping, and environmental accounting.

Overall, having sustainability initiatives within your organization is a powerful offensive strategy, whether you are measuring cost benefits, environmental benefits, or company benefits.

For more information on what other companies are doing and how you can improve your transportation sustainability initiative, check out the Transportation Sustainability Report. You can also listen to a recent podcast on the topic.

Go!Go!Go!

Jim

It’s no big surprise to many of us, but you have to say, wow, what a year for China economically. I won’t get into the politics and philosophies of this China boom that really began some years back, but I do want to address it from a business and supply chain perspective.

China surpassed the United States to become the world’s largest automobile market in 2009, figures just released show. China has also surged past Germany to become the biggest exporter of manufactured goods (in the midst of a global recession). The World Bank predicts that soon, China will overtake Japan to become the second largest economy in the world.

So what is the smartest China strategy for U.S. businesses to react with? I believe we have to look at the opportunities that the situation in China presents and discover how to grow trade, provide them with the supply chain and industry resources they need, and grow our own jobs and capital. There are other alternatives to be sure, but none that I see that will benefit U.S. companies as much in the long run.

Just look at the report issued last month by The American Chamber of Commerce (AmCham) in Shanghai showing that China presents one of the few future growth areas for U.S. businesses around the world. Based on a survey conducted by AmCham and Technomic Asia, the report reveals that 60% of American companies are investing in China for the revenue that is being created by the China market. In other words, their investment is not related so much to the availability of low-cost labor.

Another big, glaring bright spot is the material handling industry in China. If your business is involved in material handling systems and the technology, equipment and processes of warehousing and distribution, the door is wide open. It is quickly becoming one of the most important material handling markets in the world, and you don’t want to miss this fast boat to China (pardon the pun).

Other key sectors to watch right now in China include: 1) Medical, particularly healthcare services, look for the privatization of hospitals; 2) Automotive, consolidation of OEMs, growing strength of dealers and dealer groups, stronger aftermarket parts distribution; and 3) Consumer products.

I’d like to know your thoughts on China strategy for U.S. companies. What do you foresee in the next year or the next decade?

Go!Go!Go!

Jim

More resources

 

Multi-client report on warehousing opportunities in China: http://www.tompkinsinc.com/china/warehouse/china-warehouse-report.asp

 

Strategic sourcing and procurement: http://www.tompkinsinc.com/operations/procurement.asp

 

Caught Between the Tiger and the Dragon: A Business Novel

 

Book: The China Ready Company

Have you seen the adaptation happening around you? Just open your eyes and you’ll see it.

The dynamic of inventory management is shifting. Companies are evolving as they adapt to the changing economic and business environment. Those that are embracing the evolution are seeing a competitive advantage; while those that are holding onto the past inventory management practices are falling victim to natural selection.

Inventory reduction was highlighted as an area ripe with supply chain cost reduction opportunities during the recession. And now, as companies begin gaining momentum, it is more important than ever to maintain the right mix of inventory.

However, it’s not just about cost savings; Companies also need to maintain high customer service levels. Really, world-class inventory management involves the organization as a whole.

A new white paper that I recently co-authored with inventory expert and Tompkins Associates’ Principal Ralph Cox delves deeply into this topic. The Evolution to World-Class Inventory Management stresses the cost-effective integration of people, business processes and enabling technologies – all aligned with the firm’s business and operating strategies.

Achieving world-class inventory management is not something you can achieve by resting on your laurels. It requires a three-fold approach:

Inventory Optimization, in which textbook approaches to scientific inventory management are applied;

 

Sales, Inventory & Operations Planning, in which conflicts in priorities are addressed formally and solid, timely decision-making processes are developed; and

 

Supply Chain-Oriented Product Development, in which the product development process is specifically oriented to operations and the supply chain capabilities are leveraged.

And while some level of function exists simultaneously in these areas, within most companies, managing inventory in a world-class manner will proceed sequentially through these areas. At every stage, the twin goals are the same; the difference lies in the breadth of the approach and the range of groups involved.

As most organizations won’t have the inventory to cushion any potential disruptions, it is essential to have the right processes in place to reach world-class inventory management.

Go!Go!Go!

Jim

To learn more, check out our new Evolution to World-Class Inventory Management White Paper.