The Benefits of Outsourcing Your Supply Chain Management

(Originally published in the April 2001 issue of AFSMI's The Professional Journal.)

By Timothy W. Purkis

Many enterprises find that keeping focused on their business strategy can be very difficult, especially when supply chain issues progressively tend to "overwhelm" their operations and administration. Ongoing situations such as parts shortages, warranty management, customer service and unwanted inventory growth can quickly "swallow up" needed internal resources, and "eat away" at otherwise attractive profit margins. This is particularly true for small, start-up organizations that should otherwise be focusing their efforts on growing their business, rather than managing their supply chain.

However, increased availability of supply chain management resources now makes it possible for enterprises to focus more on their respective core competencies while, at the same time, begin utilizing outside supply chain management assistance to bolster their bottom lines. Still, many organizations may find themselves forced to utilize the services of multiple support providers in order to ensure that all of the critical components of an overall supply chain management model will ultimately be employed to ensure "total enterprise support".

As the largest independent provider of multivendor computer maintenance and technology support services in North America, DecisionOne has designed its portfolio of services to address this problem by focusing on the enterprise's total supply chain needs through the provision of a single-source solution for virtually all of its computer maintenance and technology support requirements - from the data center to the desktop, and from vendor management to customer support. Our portfolio includes hardware, software and networking support, as well as planning and consulting services for corporate customers with mainframe, midrange and distributed computing environments. We also provide multivendor parts repair and refurbishment, as well as inventory pipeline management services through our logistics services portfolio to original equipment manufacturers (OEMs), resellers, and other third-party service providers.

The Supply Chain Model Has Become Increasingly Complex The traditional logistics-oriented "world" has not always been this complex, as the following historical overview will attest. Initially in the 1980s, the spare parts and repair services industry, then referred to as the "fourth party marketplace", focused primarily on depot services - but this has all since changed (see our article entitled, "The Changing Model for Logistics Solutions" in the April 2000 issue of The Professional Journal). Throughout the 1990s and into the new century, the traditional depot services market has also embraced an expanding range of new supply chain support offerings, including:

  • Inventory management programs
  • Advanced exchange
  • End-of-life parts management
  • Parts life extension programs
  • Parts sales
  • Distribution services
Several factors have contributed to this evolution within the traditional logistics support market, most notably:
  • Distributed computing, where the rise in distributed computing has created the need for broader geographic repair coverage;
  • PC proliferation - where a higher incidence of mission-critical business applications has since moved to the desktop, now requiring a more rapid deployment of spare parts;
  • Multivendor technology, where the complexity and high cost of managing a multivendor parts and repair operation created the demand for a single source, independent multivendor service provider;
  • Complexity, where higher technical complexity now requires a more costly parts repair and process development effort, as well as large capital investments, that many enterprises cannot afford; and
  • Shorter product life cycles, where the risk of obsolescence has increased as products and parts are increasingly being designed for shorter life cycles making it difficult for enterprises to determine how many parts they will need to keep on-hand.
At the same time, businesses are still being challenged by the need to increase their competitive advantage while decreasing operating costs and improving services performance. In the most successful cases, outsourcing has provided a state-of-the-art solution to the problem by allowing enterprises to accomplish the following three critical goals:
  1. Concentrate on their core business - Manufacturers, OEMs and systems integrators have begun to realize that developing, producing and marketing products are their key strengths - not performing repair and logistics services. Many of these businesses are now looking to outside vendors, such as DecisionOne, to provide more cost-effective and efficient logistics services, ranging from parts repair through inventory management and all facets of supply chain management.
  2. Reduce total costs - It stands to reason that if a services organization or enterprise elects not to perform certain tasks that would otherwise be considered as part of its key strengths, then these functions, in all practicality, may be considered as non-cost-effective. As such, the decision to outsource these functions will serve both to identify the actual costs associated with performing these functions, as well as ultimately reducing the actual costs of the processes.
  3. Meet higher customer expectations - Any organization that outsources critical customer-related functions will also be looking for improvements in the existing levels of service provided to its customers. An increasingly sophisticated market base has learned to judge its services providers both on the levels of performance they receive from their primary vendors, as well as from the support organization specialists that they, in turn, employ.
According to William K. Pollock, president of Strategies For GrowthSM, a services industry consulting firm, and consultant to DecisionOne, "For those enterprises currently struggling to improve productivity and increase sales while containing operational costs, the best thing they have going for them is the ability to utilize an outside provider that can manage all or part of their supply chain activities, resulting in overall cost savings and operational improvements, and leaving them alone to concentrate on their core competencies."

Logistics as the Primary Service Delivery Strategy
Historically, the logistics function was used exclusively to support the field engineer by supplying the parts required to complete the "fix" at the customer site. In this outdated model, the field engineer was the de facto logistics support mechanism for the services organization. However, in today's increasingly dynamic supply chain environment, where products are more modular and users are now part of the equipment "fix" repair cycle, logistics has now become synonymous with the service delivery mechanism.

In this new model, it is increasingly rare for a field engineer to even be dispatched to a site to perform a "fix". For the maintenance and repair of crucial business equipment such as laptop computers or PDAs, no on-site engineers are required at all. Repairs for these classes of equipment are generally done overnight, and without the need for on-site support. As a result, the traditional need for "100 parts to be stored at 100 warehouses" to ensure parts availability has been replaced with the need for only "10 parts to be stored at a single strategically located center" by a logistics-oriented organization with the necessary critical mass.

As such, the traditional logistics model has shifted 180 degrees from getting the part out to the engineer in the field, to using the logistics function as the primary service delivery mechanism to support customers from a central location. No longer is the logistics function dedicated solely to field engineer support at the customer site; it is now more broadly focused on supporting the customer through a combination of call center, on-site and total service delivery capabilities.

Why Should a Start-Up Consider Utilizing Outsourced Supply Chain Management Services?
Whether an enterprise handles one call a day, or 1,000 calls a day, it will still require an infrastructure to manage customer call activity. However, most start-ups - even established small and medium-sized companies - do not have an adequate infrastructure in place to manage their operations - either efficiently, or in some cases, at all!

The question that many of these businesses may find themselves asking is "why should we spend the money on infrastructure when we are still small, and will probably not reach critical mass for months or years to come?" However, as many of these smaller businesses mature - and grow larger - this question is often replaced by "why should we - at this late date - now begin to build an infrastructure when everything can be more efficiently and effectively managed by an outside organization?" It is at this stage when the enterprise generally must acknowledge that it must now deal continuously with a full slate of expanded pre- and post-sales activities, all of which have their associated costs (Figure 1).

Figure 1

This is where a company like DecisionOne can provide substantial resources to both young and small, or more mature and larger, businesses through its own large and well-established infrastructure and capabilities. We already have the necessary infrastructures in place, as well as the experience of having served scores of enterprises throughout North America. For example, our outsourced call center can provide any business - large or small, start-up or mature - with the full range of supply chain management support it requires, so that it will not have to worry about infrastructure and logistics instead of product development, sales and marketing.

For example, in today's global economy, start-ups in the dot.com segment may find it much more cost-effective to utilize the services of an established outsource provider rather than building a proprietary infrastructure that "starts from scratch." In many cases, these enterprises have had no experience in building support infrastructures, and may not even have "tangible" products that can shipped to customers. As such, they may have no production facility, no warehouse, no loading dock, no board room - just some meager office space, a small crew of hard-working entrepreneur-like employees, and a great idea for a product or service. However, they will still need to take orders, handle incoming calls, provide technical support and manage channels.

This is clearly a case where the outsourcing of their supply chain management can ensure that the necessary infrastructure will be in place, but without distracting key employees from their primary focus - that is, coming up with newer and better ideas, and enlisting the aid of outside specialists in moving them to market. This is especially true for a first-year start-up, where the business is not yet selling much, and cannot typically afford to staff up to execute and manage these non-core competency activities.

Another example of an outsourcing possibility "made in heaven" is for a company determined to break into the North American market from its historical offshore base. While the enterprise may already have a mature and/or extensive supply chain management operation abroad, the cost of replicating such a massive infrastructure in the United States or Canada would likely be cost-prohibitive. In this case, such an endeavor would also be best served by utilizing the resources of an established provider that could, at the very least, match the enterprise's offshore supply chain capabilities with its own North American infrastructure and experience.

Our own experience has shown that for some customers, it may take up to six months or more to develop a new product or service, and up to 18 months or more to develop the necessary support center and capabilities. Since DecisionOne already has most of the required infrastructure in place, we can typically build the required support center capabilities within 60 days or less. As such, customers can utilize our services either as a "stepping stone" until they ramp up to a point where they have attained the critical mass to do it themselves, or as a long-term solution to manage their supply chain activities over the long haul - the choice is theirs.

One of the principal benefits of outsourcing, especially during the early days of any new venture or endeavor, is that if there are no calls, there is no cost to the customer, whereas an in-house infrastructure costs money whether the calls come in or not. Customers can work on a "pay as they go" basis to ensure that even when they are just starting out, their customers will receive the same levels of service and support that they would from more established businesses, and that their total operational costs are kept more in line with actual customer activity and volume.

Through the use of outsourced services, enterprises can avoid all or some of the costs associated with physical plant, specialized IT systems and equipment, telephone lines and bodies - and best of all - no distractions from the carrying out of their core competencies. Why should a young start-up company waste its time focusing on building these operational infrastructures when its primary business is to create and sell products and services - and not managing supply chain activities?

How Do You Select the Most Appropriate Supply Chain Management Provider?
There are many organizations that claim to be "full service" supply chain management providers, but most are only uni-dimensional in the functions they are able to perform. The ability of the enterprise to compete effectively is, therefore, dependent on the availability of key supply chain management tools. That is why it is important to find a provider that can manage all of the desired supply chain activities - not only today, but in the future as the enterprise's needs continue to grow (Figure 2).

Figure 2

Contract manufacturers may have extensive technical knowledge about the product, but typically only a limited supply chain management infrastructure. Repair companies may have the technical parts repair capabilities, but are generally lacking in their transportation infrastructure and parts management capabilities. Traditional maintenance companies may have the required levels of parts repair and maintenance experience, but lack the necessary transportation logistics capabilities. Finally, transportation companies may excel in their transportation capabilities, but may have only limited repair and technology infrastructures.

However, only a provider that has all of the necessary infrastructures and capabilities already built into its operations, and has established key partnerships with the major contract manufacturers, traditional maintenance and repair organizations, and transportation companies, can provide the "total supply chain management" support that its customers require. This is how we have structured DecisionOne - to be the primary provider of total logistics and supply chain management services to organizations that either cannot, or elect not to, "do it all themselves."

The key factor that differentiates DecisionOne from other types of specialized providers is a solid infrastructure for service delivery that incorporates call center, on-site repair and total logistics support. Unlike the transportation companies and contract manufacturers, we also offer comprehensive on-site maintenance and repair capabilities; and unlike the traditional maintenance and repair companies, we offer full call center capabilities. Our model essentially utilizes logistics as the primary service delivery mechanism, supported by our call center and on-site repair capabilities, as needed.

Pollock also suggests that, "the best supply chain management value proposition, that delivers the best quality of infrastructure support and the best 'fit' to the enterprise's unique needs, ultimately means nothing if it does not positively impact the business' bottom line. This is the 'proof of the pudding' for most customers."

This is also where we believe DecisionOne excels. We have worked hard to develop an all-encompassing value proposition that supports the total supply chain management needs of the customer; we provide the industry's leading portfolio of logistics services; we have the infrastructure and experience to get the job done; and all of our services are designed to directly address our customers' cost and availability issues.

We also help our customers find the technology support solutions they require for all of their desktop, data center, midrange and logistics environments in an efficient and unbiased manner. We can support their total supply chain objectives with:

  • More than 150 service locations across North America
  • More than 250 additional worldwide locations
  • More than 2,300 field service technicians
  • Expertise in handling nearly 15,000 hardware products from more than 1,000 original equipment manufacturers
Further, we are able to provide our customers with additional support through DecisionOne's:
  • Dispatch data gathering system
  • International support information system
  • Inventory logistics capabilities
  • Six "round-the-clock" customer support centers
  • 11 nationwide depot repair centers
While some supply chain management providers may excel in certain logistics-related areas but are deficient in others, it takes a large company, with a state-of-the-art supply chain management model and a large enough delivery infrastructure to support the total needs of its customers. DecisionOne and its partners excel in all of these areas, ranging from parts repair and management experience, to transportation infrastructure, to total supply chain management.

The availability of these supply chain management services supports not only the large and medium-sized enterprises that have historically used outside vendors, but also enables smaller and start-up companies to rely on a credible outside provider to establish, in essence, a "virtual support organization" to manage their supply chain. By doing so, they can focus nearly all of their internal resources and energy on their respective core competencies without having to "reinvent the wheel" with respect to supply chain support. They do what they do better; we do what we do best.


Timothy W. Purkis is Vice President of Logistics Services at DecisionOne. He may be reached via e-mail at tim.purkis@decisionone.com.


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