Core Competency 2.0: The Case For Outsourcing Supply Chain Management

They present a framework to help companies decide which supply chain functions are suitable for outsourcing.

Outsourcing has been a part of supply chain management for a while now, but it is primarily confined to logistics and, in the case of the automotive industry, to some manufacturing functions. Accenture believes that there are some non-logistical supply chain functions that can be outsourced—and that it would be preferable to do so in some cases. These functions include forecasting, supply planning and inventory management.

Alvarenga and Malmierca argue that what matters most is not who executes a given function, but who executes it best.

As this trend strengthens, it is important to have a framework in place to structure decisions about keeping a supply chain function in-house or outsourcing it to a third-party service provider. Alvarenga and Malmierca present such a framework, which is structured around four key questions:

• Is the function really a core competency? A core competency is defined as a source of competitive advantage. It is important to remember that the definition of what is core changes—often as specialist providers enhance their abilities at a faster rate than most in-house teams.
  
  
• What kind of knowledge does the function require? Dependence on company-specific knowledge can make an activity less suitable for outsourcing.
  
  
• Who will improve the function most in the future? In many instances, a specialist company is a preferable supplier.
  
  
• What is the risk of outsourcing? The real issue here is whether the service provider has a higher probability of failure than the organization that hired it. Also, the process of resolving risk can help identify the real drivers of the supply chain.

Alvarenga and Malmierca then present a decision tree that can be used to help companies go through the process of deciding whether to outsource a certain supply chain function or not. The decision tree can guide high-level options for improving a flawed function, determining whether to build or buy needed capabilities, and deciding if significant supply chain investments are justified.

Contact us to find out how Accenture can help you use outsourcing to optimize your supply chain—and so enable high performance.

Carlos A. Alvarenga heads up Accenture Supply Chain Services. He is also a senior research fellow at the Robert H. Smith School of Business at the University of Maryland.

Pancho Malmierca is a senior solution architect with Accenture Supply Chain Services.