Canada/European Trade Agreement A Threat to U.S. Businesses?

Talks between Canada and the European Union aimed at reaching a free trade agreement have reached a critical phase, with final sign-offs expected in the coming months.  And while the expected net benefit for Canada could be an economic boost of as much as $12 billion, and a 20 percent increase in trade wit the EU, questions have been raised about the impact of a Canada/EU agreement on Canada’s trade relationship with the United States.

Canada and the United States are each other’s largest trading partner, with almost $600 billion worth of goods and services crossing the border annually.  The U.S./Canada trade relationship has long benefited from favorable trade agreements, most notably NAFTA, which eliminates most tariffs on domestically manufactured products.  And just last year, in February 2011, President Barack Obama and Canadian Prime Minister Stephen Harper announced an agreement to improve trade relations through enhanced border security processes.

Despite the strength of the U.S./Canada trade relationship, the fact remains that more than 90 percent of the world’s customers live outside of North America.  And, just as President Obama has called on U.S. businesses to double exports by 2015, it is not surprising that Canada is also trying to expand its export base.

According to Canadian Transportation & Logistics, Canada is currently in the ninth round of negotiations toward finalizing a trade agreement with the EU – an agreement known as the Comprehensive Economic and Trade Agreement (CETA).  If approved, the agreement would facilitate access to the 27 member states that comprise the EU and its 500 million consumers.  But would the agreement cause the U.S. to lose its ranking as Canada’s top trading partner?

Jean-Michel Laurin, vice president of global business policy at Canadian Manufacturers and Exporters, explains that although CETA will not offer the same kind of “symbiotic manufacturing and integration” with Europe that Canada has with the U.S., the benefits of a Canada-Europe free trade agreement lie in “removing barriers to trade to help companies grow their business.”

Although still in draft form, the CETA is expected to offer Canadian businesses:

  • Elimination of tariffs
  • Access to the world’s largest government procurement market (valued at $2.4 trillion)
  • Easier entry for Canadian auto parts – that contain U.S. components
  • Easier entry for Canadian beef and pork products

Not surprisingly, the possibility of a Canada/EU trade agreement has sparked a lively debate within Canada, with supporters and detractors filling the media with pros and cons.  The Canadian government has attempted to respond to some of the heated exchanges, by publishing a “Myth vs. Reality” section on its official website.

Many U.S. businesses with strong trade relationships with Canada – auto manufacturers, pharmaceutical manufacturers, software businesses and chemical manufacturers — are certainly following the CETA negotiations closely.  And while it’s often said that competition can be a good thing, you can bet that U.S. manufacturers are paying close attention to any provisions that could potentially affect Canadian sales.

Posted in North American Trade | Tagged , , , , , , , , | Leave a comment

Businesses Find Revenue in Smart Returns Management

It used to be that customer returns were treated as the ugly duckling of retail management.  Returns were tolerated, because they had to be, but were pretty much tossed aside and seen as a drain on the bottom line.

Not so anymore.  Many businesses now consider returns to be a revenue generator, with returns finding new life in secondary markets including outlets, “pre-owned,” and “overstock” venues.  Businesses are also realizing that proper returns management can be a terrific customer service opportunity.   A few facts:

  • According to the National Retail Federation, consumers returned almost $2.2 billion worth of merchandise during 2011, a figure that accounts for almost 9 percent of all sales.
  • The 2007 National Shopping Behavior Survey, conducted by KPMG LLC financial advisory company, found that 58 percent of consumers said that a company’s returns policy was a factor in their decision whether or not to shop with that retailer.
  • Accenture consultants found that only about five percent of returned merchandise actually have defects, with “defect” defined as something as minor as torn packaging.  While those returned products cannot be resold as new, they can be resold on the secondary market.  The Chicago Tribune reported that during 2007, electronics manufacturers reaped $13.8 billion by repairing, repackaging and reselling returned goods.

Key to a solid returns management process though, is a comprehensive logistics plan that takes into consideration everything from compliance penalties to waste management regulations to packaging mandates.  Inbound Logistics recently included an article by product management business analyst Tamara Dwyer, in which she outlined three “pillars” of returns management – speed, visibility and control.

According to Dwyer, returns management considerations fall within one of these three pillars and, when taken as a whole, will produce an effective returns management supply chain:

Speed

  • Automated workflows: Clearly defined data points must be present throughout the supply chain, including the item’s value and materials, repair scope and cost, return source, and customer service contracts.
  • Labels and Attachments: Supply chain must include process for validating RMAs, and for generating labels and shipping documents.
  • User Profiles:  By capturing key data such as physical locations, payment terms,  and service contracts,  profiles can be created that improve efficiency and reduce errors.

Visibility

  • Web-based portals.  Allow authorized users to perform tasks from any location, at any time.  Integration of data via a web-based portal also allows multiple business partners to have access to relevant information.
  • Carrier integration.  This involves linking RMAs to carrier tracking numbers, as a way to provide shipment visibility.
  • Bar-coded identifiers.  Each item should bear a bar code that includes information including parts, condition, quantity and date.  This will ensure that parts and manpower are available when the product reaches the repair or processing destination.

Control

  • Regulatory Compliance. Dwyer accurately notes that compliance touches all aspects of the reverse logistics process.  A supply chain must take into account everything from federal border clearance processes to state regulations to industry-specific mandates.
  • Reconciliation and final disposition.  This is the process whereby all shipment data – RMA data, accounting data, product data, etc., are brought together  so that a determination can be made with regard to resale potential and value.
  • Quality assurance.  Mechanisms must be included in a returns management plan that allow for feedback across all parts of the supply chain.  By dissecting each step of the process, a business can better understand why certain products have been return, and to determine if there is a design or quality issue that should be addressed.

With most businesses pressed to find efficiencies wherever possible, the spotlight is increasingly turning to the previously overlooked returns sector.  And as the above discussion indicates, a properly managed returns process can be a bright spot, both in turns of revenue and customer satisfaction.

Posted in Industry - eCommerce, Supply Chain Management | Tagged , , , , , , , | Leave a comment

Your Supply Chain – One Bad Storm Away from Disaster?

One thing every business can agree on, the need has never been greater to safeguard supply chains against the unexpected.  Last year’s harsh U.S. winter, the Japanese earthquake and tsunami, unrest in the Middle East – and even fallout from volcanic ash that drifted over several European cities – were as good a wake up call as most businesses will ever see.   The fact that today’s supply chains are increasingly global lends even more urgency to the need to minimize risk wherever possible.

The good news is the unprecedented level of environmental and political developments that affected global supply chains, has cast a spotlight on the need for risk management.  As a result, several innovative ideas have surfaced, along with reminders about supply chain security that can help guide businesses looking to manage risk in their supply chains.

Logistics Management, for example, reported on several “game changing” non-conventional approaches including:

Enterprise-wide risk management (ERM): This approach requires a business to identify all potential risks throughout its organization, and to then assess those risks in terms of likelihood, impact, response required and monitoring progress.  As LM notes, the ERM model provides a framework that consists of eight elements:  internal environment, object setting, event identification, risk assessment, risk response plan, control activities, information-communication and monitoring.  The enterpise-risk model allows businesses to proactively identify risks, and have plans in place to manage those risks.

Scenario Planning using probabilistic methods: Although the concept of integrating probability into risk-based planning has been around for at least 50 years, it is only now making its way into supply chain risk management.  In its most basic form, this involves a business compiling a comprehensive overview of all potential risk – similar to the enterprise-wide risk management process described above – and then factoring in additional elements including historical patterns and uncertainty of all external factors.  After that, a business would develop “what if” scenarios, as a way to predict the impact of those external factors on their business.  This exercise allows businesses to better understand the impact of external factors on their businesses, to prioritize those risks, and to develop a corresponding response plan.

These strategies are intended to build upon a series of more traditional series of questions that a business must ask before undertaking a risk analysis:

  • Do our primary suppliers meet key financial stability standards?
  • Have we considered multiple source suppliers rather than relying on a single provider?
  • Should we select suppliers located closer to our customers, or to key manufacturing facilities?
  • Do we have alternate suppliers identified in case of emergency?
  • Do our alternative suppliers rely on the same transportation routes, power grids or materials manufacturers as our primary suppliers?

A study by Georgia Institute of Technology Professor Vinod Singhal and University of Western Ontario Associate Professor Kevin Hendricks found that it could take at least two years or more for companies to recover from a supply chain failure.  In addition, as noted in a recent white paper by FM Global, the professors found that businesses that experienced supply chain disruptions saw lower sales growth, higher costs and share price volatility.  These findings would seem to drive home what many businesses have learned firsthand – supply chain disruptions should be avoided at all costs.  And while it is impossible to eliminate all risk from the supply chain, it is possible to manage risk with good planning and forward thinking.

Posted in Supply Chain Management | Tagged , , , , , , | Leave a comment

Canadian Prices Running Higher than US Prices

A growing sense of angst among Canadian consumers has resulted from an inexplicable rise in consumer goods prices, as compared with U.S. prices.  This glaring price gap – which accounts for brand name products costing as much as 40 percent more in Canada – comes despite the sustained strength of the Canadian dollar.

Not surprisingly, the conundrum has result in some high level finger pointing, with legislators blaming retailers for the higher prices, and retailers throwing the fault right back at the government.

The issue has been the subject of a series of hearings convened by the Canadian Senate finance committee – at the request of Finance Minister Flaherty.  Flaherty asked the committee to look into the U.S./Canadian price gap, amidst growing public frustration.

Testifying on behalf of the Retail Council of Canada (RCC), council president Diane Brisebois cited several regulatory and legislative mandates that are affecting Canadian prices – outdated import duties on finished goods, a lack of harmonization of standards and requirements, vendor pricing, and the government’s supply management processes for dairy and poultry prices – were the four “largest contributors” cited, as reported by the Canadian Financial Post.

“We understand that this is a sensitive issue, but if this committee is really going to look at factors that contribute to the differences in pricing between Canada and the U.S., it would be remiss in not address supply management in some way,” Brisebois told the committee.

She also cautioned the panel that “it would be wrong to assume that large, multinational retailers should be able to negotiate one price from suppliers for the products they sell in North America…The reality is that suppliers of these products – those where you would tend to see the greatest difference in pricing – will charge Canadian retailers up to 50 percent more to buy those products than they charge retailers in the United States.”

Financial Post reported that Brisebois told lawmakers that the reasons cited by suppliers for the higher Canadian prices include:

  • Canada is a smaller country than the U.S., and therefore more expensive in which to operate;
  • Prices charged are what the market will allow; and
  • Higher prices are necessary to compensate Canadian distributors and wholesalers.

How bad are the price discrepancies between the U.S. and Canada?  Following is an overview of pricing prepared by the Retail Council of Canada:

Item U.S. Cost Canadian Cost Percent Difference
Soap – 16 pack $6.99 $8.98 43%
Shampoo
(1.5 liters)
$9.33 $12.46 34%
Conditioner
(1.18 liters)
$6.23 $10.00 37%
Automobile Tires $128.21 $169.69 32%
46” LED TV $888.75 $1,001.00 13%
Water Filters – 6 pack $22.77 $26.76 18%
Coffee Maker $127.76 $167.19 31%
Electric Toothbrush $91.29 $100.99 11%
Ibuprophen 200mg
(250 Count)
$10.76 $18.29 70%
Aspirin 81mg low dose
(350 Count)
$10.16 $21.78 114%
Ketchup 2.5 liters $3.93 $6.90 76%
Freezer bags
(150 pk)
$6.10 $9.24 51%
Laundry Detergent
(5 liters)
$11.27 $13.94 24%
Orange Juice
(7.56 liters)
$10.01 $12.66 26%

Not surprisingly, higher prices in Canada have resulted in a spike in cross border sales.  According to Douglas Porter, deputy chief economist with BMO Capital Markets, U.S. businesses can expect to continue to benefit.  “There has been precious little movement in underlying relative prices in the past two years despite the [Canadian dollar’s] record sprint,” he told the Wall Street Journal’s Marketwatch blog.  “They are never going to equalize at today’s exchange rate, though we will see some chipping away at the price gap in the year ahead.

But, he added “I’m not sure even if we stayed at par for years and years and years that the spread would ever completely vanish.”

So while our neighbors to the north continue to ponder the reasons behind their significantly higher consumer prices, savvy U.S. businesses are rolling out the welcome mat for bargain-hungry Canadian shoppers.

Posted in North American Trade | Tagged , , , , , , , | Leave a comment

Natural Gas Vehicles – Next Step in Supply Chain Sustainability?

With the price of a gallon of diesel fuel seemingly stuck above $4, it is not surprising talk is growing about options for fleet owners and managers to look beyond traditional fuel engines. Most recent, the Conference Board of Canada released a report in late April supporting the use of liquefied natural gas-(LNG) fueled trucks into that nation’s fleet.

As reported in Truck News, The Conference Board report suggests, despite the high upfront costs, trucks fueled by natural gas could generate savings of up to $150,000 per truck over a ten-year period. “Our models indicate while the capital costs are high, the savings from lower fuel costs make natural gas an economically viable fuel for the trucking sector,” said Vigay Gill, co-author of the report, entitled “Cheap Enough? Making the Switch from Diesel Fuel to Natural Gas.”

As the report notes, “nearly half of these savings are in the form of fuel tax savings, as natural gas is currently exempt from the equivalent of road diesel excise tax.” This advantage, could be wiped out should legislators decide to raise taxes on natural gas.

What is the current status of LNR powered trucks, and how prevalent are they on North American highways?

According to Bloomberg News, about 22,000 natural gas-powered heavy-duty trucks were on U.S. highways during 2010, out of an overall fleet of 700,000. Although the concept is still in its infancy, new developments and incentives are raising expectations that natural gas-powered trucks will be seen as a viable alternative to diesel. “We’re at the cusp of something growing exponentially in the industry,” Glen Kedzie, energy and environment counsel for the American Trucking Association said. “Based upon everything we’ve been witnessing not only on the infrastructure front but also on the vehicle front, these gains are increasing very rapidly.”

What are the biggest obstacles to a wider embrace of natural gas technology?

  • Cost. The cost of a LNG-powered truck is approximately $40,000 more than the $110,000 cost for a comparable diesel-powered truck.
  • Lack of Fueling Stations. The lack of natural gas filling stations along the nation’s highways is a detriment to the wide scale integration of these trucks into the nation’s fleet. According to Bloomberg, the U.S. currently has 18 stations that dispense liquefied natural gas, 14 of which are in California. However, the Department of Energy projects that an additional 70 stations will be up and running by the end of 2012.

Along with those downsides, come strong upsides:

  • Tax Credits. President Obama has been a strong supporter of natural gas technology, and has asked lawmakers to support a tax credit for as much as 80 percent of a vehicle’s cost. Although, Congress has yet to enact those tax breaks into law.
  • Fuel Savings. Liquefied natural gas averages $1.50 for an amount of LNG equivalent to a gallon of diesel, which currently sells for roughly $4.10.
  • Environmental Impact. Although LNG is still a fossil fuel, gas emissions would be reduced by as much as 50 tons per year per truck.

Several leading carriers have announced purchases of LNR-powered vehicles. The concept is catching on, and as technology improves and initial capital outlays decline, we can expect to seen even more natural gas powered trucks on the road.

Posted in Supply Chain Management | Tagged , , , , , , | Leave a comment

U.S. Clean Fleet Initiative Mirrors Purolator’s Greening the Fleet

When President Barack Obama announced a “National Clean Fleets Partnership,” he challenged the nation’s businesses to find ways to help reduce the nation’s reliance on foreign oil, and to “replace your old fleet with a clean energy fleet….”  The President called on businesses to cut petroleum use by 2.5 billion gallons by 2020, and he pledged technical assistance to help companies adopt vehicles that use alternative fuels such as electricity, natural gas, hydrogen or propane.

Several of the nation’s largest fleet operators were quick to sign on to the President’s challenge.  AT&T, Verizon, PepsiCo, UPS and FedEx  — companies that account for five of the nation’s ten largest commercial fleets – all committed to working to improve their energy sustainability.
This U.S. initiative is similar to efforts underway in Canada, where Purolator has been widely recognized as a trailblazer in changing its energy practices.  Purolator first introduced its “greening the fleet” initiative in 2002 which, among other things, introduced a “no-idling” policy, requiring vehicles to be turned off completely during stops.  The company also reconfigured all distribution routes as a way to eliminate redundancy and eliminate wasted miles.

Purolator’s fleet has undergone a major transformation, with hybrid technology  now accounting for more than 10 percent of its fleet.  In fact, Purolator has the largest HEV fleet of any logistics company in North America.  In addition, Purolator is actively exploring other types of alternative-fuel vehicles, including a battery-operated “Quicksider,” which made its debut throughout the Olympic Village during the winter games in Vancouver.

As one of Canada’s largest fleet operators, Purolator’s initiatives – which have received many accolades from leading industry and government organizations – serves as a model for other businesses.  And now with the U.S. focused on greening its own fleet, we can hopefully expect a cross border transfer of good green ideas and resources.

Posted in Government Regulations | Tagged , , , , , , | Leave a comment

Pallet Industry – Are changes on the horizon?

Unless you have a direct interest in pallet design or manufacture, you probably have not followed recent trends in the industry.  Which means, you are probably unaware there are no universal standards regarding pallet sizes, design or components.  This lack of universality is surprising.  Globalization has resulted in a surge in pallets packed with exports traveling across the world, and the international community has done a good job of implementing universal codes and regulations for just about every aspect of the commerce and trade process.  So a glaring omission seems to be the lack of universal standards for pallets.

For example, the “block pallet” is the dominant type of pallet used throughout the European Union, while North American businesses tend to favor the “stringer pallet.”  Australia makes use of its own unique pallet, which fits nicely aboard Australian railcars.  In Asia, which according to Pallet Enterprise magazine is “still in its pallet infancy,” manufacturers tend to favor block pallets, although many of them are plastic.

The main difference between the two types of pallets?  The block pallet uses a perpendicular overlay of construction materials – usually wood – so that a forklift may have access to any of the pallet’s four sides.  A stringer pallet is generally not as strong as a block pallet, and uses a system of parallel construction materials, so that a forklift can only access the pallet from two sides.

While the various pallet designs have tended to coexist, a potential game changer took place when Costco announced, beginning in 2011, it would only accept merchandise from suppliers on block pallets.  According to Modern Materials Handling, the change was driven in part by the quality of some pallets Costco was receiving. 

So what impact has the Costco decision had on the rest of the industry?  An immediate reaction was the formation of a coalition of pallet manufacturers to try and offset some of the economic costs of suddenly finding themselves shut out from the lucrative Costco business.  The new coalition, the Pallet Logistic Unit-load Solutions (PLUS), is an attempt to compete with Costco’s three main block pallet suppliers:  CHEP, iGPS and PECO.  

Although Costco’s move was an eye-opener, and sparked talk about whether or not it would ignite moves by other major retailers, no one is predicting the end of stringer pallets.  One trend that has emerged is a growing tendency to rent, rather than purchase pallets.  Modern Materials Handler’s 2011 Pallet Survey, found the number of respondents managing their own pallet pools had dropped by 13 percent, and that CHEP saw “interest and/or participation” in their business jump from 22 percent to 43 percent.  Since block pallets are more expensive to manufacture, a trend could be emerging in which manufacturers are opting to rent from a third party.

While it’s an interesting time in the pallet industry, Bruce Scholnick, president of the National Wood Pallet&Container Association (NWPCA) seemed to sum up the situation by noting that:  “All pallets have a place in the market.”

Posted in Supply Chain Management | Tagged , , , , , , , | Leave a comment

Opposition to Service Changes for US and Canadian Truckers

Canadian truckers doing business in the United States will soon have to change their modus operandi, as a result of regulatory changes issued late last year by the Federal Motor Carrier Safety Administration (FMCSA).

FMCSA’s new regulations, which have been widely criticized by U.S. trucking organizations, will impose new restrictions on drivers including:

  • Mandatory 30-minute break after eight hours of consecutive driving
  • Mandatory two consecutive nights off (including 1am to 5am) when using 34-hour reset
  • Limit of one reset within a seven-day period

Canadian Trucking Alliance CEO David Bradley was quick to criticize the new regulations as being “disappointing and unnecessary,” and said that they would have a negative effect on Canadian carriers doing business in the United States.

“The systems, routes and schedules carriers deploy in shipping US exports to Canada have been designed around current hours of service rules,” Bradley said in a statement.  “Any reduction in the current rules would have a significant negative impact on the efficiency and productivity of the North American supply chain, and would be particularly disruptive to the shipment of US exports with no appreciable benefit to driver safety.”

Bradley criticized U.S. regulators for not looking to Canada for guidance during the review process.  “Whether it’s the hours-of-service rules or truck weights and dimension standards, they need only look at Canada, their next door neighbor, to see how a more flexible set of rules can work without compromising safety,” he told Trucknews.com.

Canada allows drivers longer on-duty and driving times, and also provides flexibility with regard to use of sleeper berths and re-start provisions.

“We don’t need new rules, we need better enforcement,” he added.

The new regulations are scheduled to take effect in July 2013.  The American Trucking Association has indicated that it is considering a legal challenge as a way to prevent the new rules from taking effect.

Posted in Government Regulations | Tagged , , , , , , , , | Leave a comment

Horizonal Collaboration – Yankees and Red Sox Sharing a Plane?

In a sign of how integrated today’s business environment has become – and how “yesterday” competitive rivalries could soon be – manufacturers are increasingly teaming up to share warehousing, transportation and other logistics costs.  And sometimes, that means having products commonly perceived as bitter rivals sharing space in a warehouse or on a truck .

This trend, known as “horizontal collaboration,” is increasingly common as manufacturers look for out of the box approaches to cutting costs and finding new ways of doing things.  A recent article by Mary Siegfried in Inside Supply Management described horizontal collaboration as “manufacturers sharing supply chain assets for mutual benefits.” 

Businesses in the same industry, who often have the same customers and same logistics needs are prime candidates for horizontal collaboration.  As Siegfried notes in her article, a “high-profile” example of horizontal collaboration now underway involves two competitive chocolate manufacturers, the Hershey Co. and the Ferrero Group in North America.  “Late last year,” Siegfried writes, the two companies announced plans to collaborate on warehousing, transportation and distribution…” 

Other “competitors” sharing logistics processes include Nestle USA and Ocean Spray,  as well as Pennsylvania-based “Just Born” confectioner (best known for “Peeps” marshmallow candies) and an alliance of five other candy companies.  According to Joel Sutherland, managing director at the University of San Diego’s Supply Chain Management Institute, “Just Born increased the amount of freight shipped out of its distribution center by including other confectionery shippers to form a collaboration of ‘like’ shippers delivering product to ‘like’ customers.”  The impact?  Sutherland says that the collaboration will save the companies “about 25 percent of their total transportation costs per year.”

Businesses interested in integrating horizontal collaboration solutions into their supply chains should be forewarned though.  It’s not for everyone, and it’s hard work.  According to the North American Horizontal Collaboration in the Supply Chain Report – 2011, produced by supply chain research group Eyefortransport, top concerns for businesses include:

  • Fear of information disclosure
  • Lack of clarity over who’s in charge
  • Lack of widespread acceptance of ideas
  • Difficulty finding appropriate partners
  • Difficulty starting trusting relationships

Eyefortransport also found that legal issues and uncertainty over customer needs are the biggest concerns for carriers and 3PLs.  But, as the survey notes, “should these challenges be overcome, it is clear there is a real potential to reduce costs and drastically improve supply chain efficiency.”

Would your compnay consider a horizontal collaboration?

Posted in Supply Chain Management | Tagged , , , , , , | Leave a comment

Collaborative Outsourcing – Efficiencies & Savings

Just the phrase sounds very corporate-speakish, and readers will be excused if their eyes start to glaze over contemplating a post on this subject. But truth be told, once you get beyond the admitted geekish name, “collaborative outsourcing” is one of the most interesting trends to hit the boardroom in some time.

What exactly is collaborative outsourcing? We’re all familiar with outsourcing, whereby a business offloads its manufacturing, or its transportation, or maybe even its procurement department to a third party, as a way to reduce headcount and streamline operations. In the process though, a business often gives up control – products are suddenly manufactured and delivered on someone else’s schedule.

While traditional outsourcing works well for some businesses, collaborative outsourcing is increasingly becoming the option of choice for businesses not willing to cede that control. Instead, collaborative outsourcing allows a business to take on external “partners,” who perform specific functions for the business, but as part of an overall strategy and under guidelines set by internal staff members.

With regard to managing a transportation network, this means that a shipper may outsource labor-intensive functions including contract management, route optimization, returns management, and shipment management. In a collaborative model though, shippers can then reallocate staff to more strategic assignments, while the outsourcing partners provide real-time updates and access to pertinent data. “

The collaborative approach can have positive and measurable effects on a business’ bottom-line, including:

  • Cost savings. Cutting costs is a primary objective in outsourcing business functions. Obvious areas to cut costs include headcount, physical assets and operational support. Specific to the transportation function, a business could achieve immediate savings by outsourcing the freight management function, generally due to route optimization and consolidation.
  • Greater expertise. By engaging the services of external “experts,” an organization will benefit from having greater brainpower at the table, presumably offering state of the art insights and recommendations for each subject area.
  • Best Practices: Another benefit of bringing together experts from various functional areas is to garner insights and “best practices” that can be folded into a business’ strategic plan.
  • Greater control: Unlike traditional outsourcing models, collaborative outsourcing allows internal employees to steer the discussion and serve as the project leader. This ensures that an outsourced project is synced with overall business strategies, and that all possible synergies are considered.

Not surprisingly, there can be downsides to a collaborative approach, especially if outside vendors are not managed properly:

  • Make sure all parties are on the same page. SupplyChainBrain reported recently on the need for all outsourcing relationships to be built on a common understanding that each party has a vested interested in a project’s success. “We see the most successful companies not just managing the supplier with supplier relationship management tools, but managing the business with their suppliers using an insight-vs.-oversight governance philosophy.”
  • Partner with Care. This seems like an obvious point, but many businesses have learned the hard way that transportation or logistics partners that sound good on paper, or that can “talk the talk” during the screening process, are unable to produce when the time comes to perform. Don’t assume that a potential partner has the experience or expertise that they claim to have. Take the time to do your homework and conduct a thorough screening of all potential partners.
  • Set clear, measurable objectives. Business Week reported on the most common mistakes that companies make in their outsourcing relationships: The need to clearly outline, define – and get buy in – with regard to the scope of work, assignments, and deadlines. “Without these elements in place, key project components can be delayed and the overall goal of the engagement overshadowed by missed deadlines and added expenses.”
  • Technology Compatibility – Move to the Cloud? What good is your carefully crafted network of external suppliers, if you are all operating on different technology platforms? If incompatible systems make it impossible to share data and engage in online project management. An obvious solution may be to upload pertinent data to a cloud provider, thereby giving every member of your team immediate and joint access to key materials.

The economic recession was a hard lesson for many businesses that found themselves faced with high overhead costs, little flexibility, and few options for innovation. Today though, as businesses seek to regain their economic footing, collaborative outsourcing is an increasingly attractive option for streamlining processes and improving productivity.

Posted in Supply Chain Management | Tagged , , , , , , , | Leave a comment