SCMAP Perspective #231

Published in Port Calls, Decembe r 21, 2009

SCM SEMINAR, OUTSOURCING

Fax 551-3207

Email lizaalmonte@yahoo.com.ph

By Ed Sanchez

SCMAP Executive Director

Is Outsourcing Going Out of Fashion?

This is the title of a short article in Supply Chain Asia Magazine. Nov./Dec. 2009. The article actually refers to another article in the Economist, which asserts that ‘big is back’, referring to the creation of giant corporations resulting from a number of trends.

The Economist article says that corporate giants are returning because companies are finding contracting to be too complex and too risky.

I remember my old days with Unilever in the 1970s. Unilever, a global company, was always bent on doing everything by itself, except what was obviously not for the company to do, like operating domestic ships for distribution. It had truckers under total control, almost like owning the trucks.

In those days, the term third party logistics was unheard of. But there were already the beginnings of outsourcing. Unilever started contracting toll manufacturers and packers. Other companies, like Johnson & Johnson were also into toll manufacturing.

Manufacturers were afraid of surrendering the distribution function. Reasons included fear of discovery of marketing secrets by competitors. Information on new products to be launched stored in a third party warehouse under third party control would be in the hands of non-employees and could be transferred to competitors. Also non-employees might not adhere to company standards for warehousing, handling and packaging.

The attraction of freeing capital by disposing of assets was not sufficient to overcome the advantage of total control. Likewise for the advantages of flexibility and access to new ideas. Third parties just could not be trusted enough.

Now, with the seeming move away from outsourcing, the Supply Chain Asia article says that actually the new corporate giants are different from those in the past. These companies are more agile, “nimbler, more entrepreneurial and more focused”.

Reasons for the growth of new giants include:

• Companies are finding the contracting process too complex and too risky
• Key suppliers of some companies have collapsed financially
• Companies find regulation too complex
• Companies find difficulty in overseeing the performance of external contractors

The article continues that the real problem is that companies lack the skills, systems and knowledge to manage non-owned resources. Companies have failed to develop their contracting competencies. “Far from going out of fashion, contracting needs a renaissance”.

Intro to SCM Seminar

SCMAP starts its year with its 2-day seminar on Intro to SCM. Readers please note the change in schedule (formerly Jan. 21-22, 2010).

• Schedule       : Jan. 25-26, 2010 (Monday – Tuesday)
• Time               : 8:00 am to 5:00 pm
• Venue                        : Astoria Plaza, Ortigas Center
• Fee                 : SCMAP members P11,000 VAT included

non-members P13,750 VAT included

• Please make check payable to UniMaC Business Consultancy, Inc.

The 2-day seminar is a capsulized version of the SCMAP-DLSU certificate program in SCM (which is 42 Saturdays long). Facilitators will be the same as the faculty handling the DLSU program. Their topics are:

• Ike Castillo    : Intro to SCM, Transportation and Distribution Mgt., Strategic Purchasing & Procurement Mgt.
• Al Lagera       : Inventory Planning & Control
• Gabby Patag : Warehousing Mgt., Material Handling & Inventory Mgt., Supply Chain Governance

Omissions

At SCMAP’s Christmas fellowship last December 10, names of the incoming directors and committee chairpersons were announced. However three names out of nine were inadvertently omitted among elected committee chairs, namely

• Arnel Gamboa          Benby Enterprises
• Gerry Ong                  Cheng Ban Yek
• Yhel Reyes               GAC Logistics

Of the above three, only Yhel Reyes is a newcomer. SCMAP apologized to the three.

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email scmap.org@gmail.com.  Those interested in SCMAP training and other activities are requested to send their e-mail addresses. Visit SCMAP’s website at:www.scmap.org

December 19, 2009