I enjoyed reading the recent supplier collaboration white paper by Kinaxis, if for no other reason than all of the underlying messages.

The 1st note that popped out was a reference to a PRTM report which said that the outsourcing return is at most 17%.  There are many banks that are no longer in business that would have been had they had a 17% return. Many bailouts would not have been required with a 17% return. The focus on the 17% shows two things. The first is that people are surprised that there are supply chain management costs. After 30 years in supply chain, I am still shocked that supply chain management is rarely considered in the cost analysis for outsourcing. The second, and more positive item is the attitude that no matter how well something is done, if it can be improved it is not good enough.  The white paper properly focused on the latter item - how to improve.

Between the lines throughout the white paper I see the implied request for a study of what are the real cost of out sourcing or off shoring vs. in house. There are some true costs that would not be in house (for example, trade regulation, transportation time, language issues, etc.) After those ‘real’ differences are identified, any other cost increases that would not be there if in house are exactly what the paper addresses: the costs of treating outsource differently than in house.

The paper makes a simple point – you have to perform the same communication whether you have in-house manufacturing or you outsource. So what’s the problem?  The problem is that most manufacturers traditionally have a double standard when it comes to communicating and collaborating with outsourcing partners versus internal operations…and there are significant costs implications of that. 

Data exchange was noted as not being the same in-house and out of house.  One item cited is the effectiveness of tactical data exchange creates a glut of ineffective data.  If in-house, a modern company would not provide a bunch of data from a department with the expectation that the receiving department would find what is needed within it. Instead, there would be a well-coordinated decision as to what information is needed, how and when. Why should anyone not expect the same needs to be present when outsourcing? The same work needs to be done, just in different location.

The second cause of the lack of communication and strategic data alignment cited was the tendency to provide information to outsourcing partners on a ‘need to know’ basis. Though the white paper clearly points out the need for true collaboration, perhaps the issue is psychological? The fear of losing control? 50 years ago the franchising industries got past these issues.  Production operations and supply chain can take some pointers.

I am tempted to say that we cannot operate like we have in the past in the new world, but that statement does not even fit. I cannot remember any world when the right way to do business was to throw something over the fence, say it is now your job, and expect results.

The companies that will excel will do their job properly in this arena.

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Tags: Collaboration, Outsourcing, Supply chain management
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