Factors that affect the decision to outsource a supply chain function
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According to a KPMG survey, almost 77% of survey respondents outsource at least 10% of their transportation functions. In addition, almost 55% of respondents outsource 91% or more of their transportation-related supply chain activities (1).
43% of manufacturers regarded cost to be the number one factor in all of their supply chain management (SCM) outsourcing decisions. Moreover, 77% rated it “most important” or “second most important (2).”
Generally, outsourcing can help companies gain competitive advantage. Companies who outsource gain the ability to focus on their core competencies. A study by ARC Advisory Group explained why companies specifically outsource transportation-related IT services:
These services fall outside their core competencies.
They require hard-to-find human expertise and resources.
Companies want to eliminate assets and free up working capital (3). Their survey found that over 70% of large companies (>$1 billion revenues) prefer to outsource transportation-related IT functions including importing/exporting, warehouse management, transportation execution, transportation planning, and network design (4).
Findings from a KPMG study show that many manufacturers believe “cost” to be the number one factor in an SCM outsourcing decision. It has been found that companies that outsource transportation have been taking advantage of economies of scale within the motor carrier industry. Motor carrier rates have come down considerably since the Interstate Commerce Commission opened up the industry to more competition. Prior to the Motor Carrier Act of 1980, there were only about 18,000 carriers. Today, there are almost 50,000 carriers. According to Dr. C.G. Bereskin, “…in many ways, the motor carrier industry resembles the economic model of a perfectly competitive industry in which competition, market entries and exits, and a generally homogeneous product works together to force rates toward the minimum, long-run average variable cost (5).”
43% of manufacturers regarded cost to be the number one factor in all of their supply chain management (SCM) outsourcing decisions. Moreover, 77% rated it “most important” or “second most important (2).”
Generally, outsourcing can help companies gain competitive advantage. Companies who outsource gain the ability to focus on their core competencies. A study by ARC Advisory Group explained why companies specifically outsource transportation-related IT services:
These services fall outside their core competencies.
They require hard-to-find human expertise and resources.
Companies want to eliminate assets and free up working capital (3). Their survey found that over 70% of large companies (>$1 billion revenues) prefer to outsource transportation-related IT functions including importing/exporting, warehouse management, transportation execution, transportation planning, and network design (4).
Findings from a KPMG study show that many manufacturers believe “cost” to be the number one factor in an SCM outsourcing decision. It has been found that companies that outsource transportation have been taking advantage of economies of scale within the motor carrier industry. Motor carrier rates have come down considerably since the Interstate Commerce Commission opened up the industry to more competition. Prior to the Motor Carrier Act of 1980, there were only about 18,000 carriers. Today, there are almost 50,000 carriers. According to Dr. C.G. Bereskin, “…in many ways, the motor carrier industry resembles the economic model of a perfectly competitive industry in which competition, market entries and exits, and a generally homogeneous product works together to force rates toward the minimum, long-run average variable cost (5).”
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