What is Co-Sourcing and
How Does it Affect
Your Bottom Line?

January, 2007 – Chain Store Age.com

You might worry about outsourcing your company’s entire supply chain—not enough control, too many unknowns, not worth the risk. But what if you could focus 100% of your attention on your core business functions and still keep a close connection with your supply chain? Now you can! It’s called co-sourcing. It’s a custom-tailored system designed to provide the logistics and supply-chain services your company needs.

Successful supply-chain management is a series of structured and established tactical maneuvers. A great deal of strategy is involved in forecasting inventory: picking, packing, and shipping functions required to distribute a finished product; shipping a replacement part; or processing a return from a retail store or a consumer. The decision to keep these functions in-house or contract with a third-party logistics (3PL) provider is entirely strategic and can dramatically impact the bottom line of any organization.

Many companies are getting the best of both worlds by co-sourcing with a 3PL rather than keeping the supply-chain functions entirely in-house.

By co-sourcing, companies gain access to more advanced supply-chain technology than they might be able to experience or maintain if all the services were kept in-house. Many 3PLs leverage warehouse automation to meet the growing demands and shrinking timeframes customers expect them to meet. They are required to handle products of varying sizes and weights, with different packaging and kitting requirements. By using the latest technology and synchronizing business processes with their customers, 3PLs can maximize speed and quality of service.

The concept of co-sourcing can be defined best as putting together a group of service providers who are all working toward achieving one common goal. Bringing multiple service providers with their core competencies together to provide a comprehensive solution for the total program saves companies money, time, and the effort needed to obtain the necessary resources, which ultimately leads to customer satisfaction. Co-sourcing differs from outsourcing by having multiple procurement points already in place, whereas outsourcing typically involves a single provider in only one or two facilities. Co-sourcing allows an organization to use and benefit from using numerous providers with the same products. When outsourcing to a 3PL, all functions of the program are centrally controlled.

A company that is expert in many things might have a few weak areas in their supply chain. Co-sourcing can provide the expertise that is lacking.

Tom Giovingo, executive vice president for Fidelitone Logistics, says that it is not uncommon for us to use a co-source relationship with each of their clients. When co-sourcing with a client, the tasks involved for the 3PL include searching or shopping for the item being requested, purchasing the item, shipping it, and then billing the client for it.

For example, a 3PL may work with several major repair parts manufacturers and distributors. For these customers, the 3PL uses a technology-based virtual distribution system with centralized order processing and data management based on the individual company’s business rules. This automated, non-traditional approach can consolidate and centralize a company’s repair parts supply chain functions for carry-in repair facilities, while allowing the execution of parts distribution to remain flexible and decentralized.

All communication can take place automatically through FTP. Throughout each day a company can transmit a list of parts needed to the 3PL, who can then send it on to more than multiple vendors, essentially in a parts “RFP” several times a day. These suppliers respond to the request with price, availability, and location of the part.

Based on business rules established by each individual company, the system can then automatically choose a supplier based on the best combination of price and delivery speed. A purchase order is then created and transmitted to the supplier. The supplier is able to ship the same day directly to the company’s repair facility. From order to invoice, the entire process can take just minutes and thousands of transactions occur each day.

Another benefit of working with a 3PL is vendor management. Organizations that keep supply-chain services in-house must deal with dozens, if not hundreds, of suppliers to manage the availability, price, and geographic requirements of meeting customer demands. When co-sourcing with a 3PL, there is only one relationship to manage.

Any company considering outsourcing logistics should focus on accuracy of deliveries and information, said Giovingo. Companies should also be able to maintain a level of control of the supply-chain processes without having to micromanage the 3PL.

“It is time for a company to turn to co-sourcing with a 3PL when executives feel the company no longer has the resources or core competencies to be able to provide their customers with the services and flexibility required,” said Giovingo.

By co-sourcing a portion or all of their supply chain, organizations can focus on what they do best, while benefiting from the 3PL’s specialization and best practices gleaned from other clients. Supply-chain management is a critical function of any business. To be successful, 3PLs and their clients must work together as honest partners, with a focus on accomplishing goals together as two companies that function as one.

About the Author: Mary Zwiefelhofer is the marketing manager of Fidelitone Logistics, a 3PL headquartered outside of Chicago.