TURN YOUR CHALLENGES INTO OPPORTUNITIES

Unless he or she just returned from Mars, every supply chain manager has encountered, or certainly heard of the “Amazon Effect”. Driven by the aggressive customer techniques of Amazon, the term has come to stand for rapid and dependable service, often same day deliveries, free shipping, and instant visibility. To accomplish this, Amazon has established hundreds of distribution points in the country from which their shipments are made. Obviously, with the high level of service  provided, it is necessary to have inventories located closer to the buyers; but not every firm has an interest in, or can afford to establish hundreds of distribution centers throughout the United States.

As other sellers scramble to compete with Amazon, they are seeking alternate ways to do so. Wal Mart for example, fills some online orders from their stores, as do other retailers with diverse store networks. One option that surprisingly, is not gaining as much momentum as I would have expected is the establishing of inventories at the facilities of logistics service providers close to target markets. Outsourcing is not a new concept, but it seems that some managers and firms are just discovering it.  A white paper published a few years ago, stated that “outsourcing was formally identified as a business strategy in 1989.” Not too long after that, I had a young consultant inform me it was “invented in 1990.” (That’s scary.) These comments came as somewhat of a surprise to me since I have been involved in some form of outsourcing since the early 1960’s. While outsourcing has gained renewed emphasis in the last twenty years, the practice can be traced back almost as far as one would care to research it

In Warehousing Profitably author Ken Ackerman even suggests that one of the first business logistics arrangements is described in The Bible, Genesis, Chapter 41.This is an account of the seven years of plenty during which the people in the land of Egypt accumulated  crops for the predicted seven years of famine. The grains and other fruits of their labors were taken to public storehouses for safekeeping, after which they were distributed.  In Europe, a number of logistics service providers can trace their origins back to the Middle Ages. The first commercial warehouse operations were built in Venice, Italy in the 19th century. Merchants from all across Europe used them as collection and distribution points. In a nutshell, any person or firm that has ever subcontracted an activity has outsourced. For at least a hundred years, firms worldwide have found that outsourcing can be a solution for any number of distribution challenges.

Through the 1950’s and 1960’s the outsourcing of warehousing and transportation was common. The relationships for the most part, were short term; but there were other firms such as DuPont and Quaker Oats that had long – term outsourcing agreements. (The long term relationship between Quaker and Worley Warehousing for example, was an important component of the Quaker distribution network.)  During the 1970’s manufacturers placed heavy emphasis on cost reductions and improved productivity. Longer – term relationships became more common, particularly in the warehousing area. Single tenant facilities were built and operated by warehouse companies in major markets of the U.S. Consolidation of facilities into larger operations became more and more frequent.

The 1980’s brought with them a phenomenal number of mergers and acquisitions; and in many cases, firms found themselves with more distribution centers than any one company ever wanted. Consolidation became a necessity, and many of the new facilities were outsourced. By 1990, there was an increasing interest in outsourcing anything that was not directly related to a company’s core business. More and more companies came to realize that the real competitive edge was to be found in enhanced customer service and relationships, and many found outsourcing as an effective method of accomplishing this. By 1999, the entire country was caught up in the potential and mystique of the Internet. We hit a rough patch when too many order fulfillment logistics service providers were established, only to have a significant number fail when the bubble burst. Those who survived were both wiser and more conservative.

It was also about this time we began to see another wave of consolidation in the LSP industry, and users of these services found themselves dealing with different companies and individuals, as well as different cultures. Mergers introduced larger, and in many cases foreign entities into the outsourcing equation. Many of these alliances were an effort to respond to the increasing global needs of outsourcing firms.

The decade of the 2000’s brought us a bigger and better industry with more sophisticated providers and expanded services, particularly in the technology area. Today the industry continues to expand and concepts such as vested outsourcing, visibility enhancement, last mile delivery techniques, and other improved services have been installed. Outsourcing once again has emerged as a viable solution to another distribution challenge – the “Amazon Effect”.

Certainly the world and supply chain management are changing, but let’s keep in mind that we already have some tried and true techniques for meeting the new challenges. All we have to do is take advantage of them.

Written By: Clifford F. Lynch