Technology companies are pioneering a radical rethink of their supply chains in order to drive out cost and complexity and improve their customers’ experience. Dubbed ‘transformational outsourcing,’ the process involves companies asking fundamental questions about what they do, what they should be doing, and what they can ask others to do for them.
The new focus on transformational outsourcing is one of the unsung benefits of the global financial crisis. “The financial crisis forced technology companies to evaluate their cost structures,” says Damian Pike, Vice President of Innovation at DHL Specialist Services. “They went on the hunt for extraneous costs and drove them down. Companies were empowered to make bolder decisions.”
But there is only so much you can cut and what the exercise revealed was just how fragmented regional and global supply chains were, having come together over time through acquisitions or just through developments in various territories having proceeded independently. The result is limited visibility across the piece and significant variations in customers’ experience.
“This is a problem for technology companies be cause they have a much higher focus on lifetime customer retention,” says Pike. “They need to make sure that if a customer buys a server or a television once, they always come back. That shifts the spotlight onto how you manage the total cost of ownership, not just the cost of outbound delivery. That also drives the need for a simple supply chain because you need a more creative way of delivering the value.”
Developing a partnership
In 2014, DHL won a European supply chain award with its customer, Telefónica, for a scheme to make use of social media feedback to improve the customer experience. DHL tracks social media activity related to supply chain matters and uses that information to improve supply chain initiatives.
With another customer, data was captured to record what the company sent out and what it got back, which allowed millions of dollars worth of savings through a better understanding of what product they should be sending and when. “Because of our scale and financial strength we have the ability to have some quite interesting conversations about assets, liabilities, balance sheet and working capital to try and work out what is the optimal configuration,” says Pike.
Novel solutions could include, for instance, helping retail assistants cut the number of returns by having Apps on their iPad that guide them in exploring whether there is something they can do to make the customer happier with their purchase. Inventory financing is another area, focussing on how to optimize the balance of the ownership of inventory.
To make transformational outsourcing work, however, companies have to develop a partnership style of relationship with logistics suppliers. Pike advises them to initiate more of a dialogue earlier around what it is they want to achieve, as opposed to getting caught up too early in pricing preconceived procurement approaches. “One of the drivers for transformational outsourcing,” he says, “is customers asking: ‘How do I configure myself so that the supply chain team is focussed on strategy and customer satisfaction and not on operational, daytoday challenges?“ — Rod Sweet