Insourcing or Outsourcing Your Supply Chain Optimization?

Recently I had the opportunity to speak to an operations management class for MBA students in the Goizueta Business School at Emory University.  The class is intended to give the students an introduction to a variety of problems that they might encounter during their careers, and to management science techniques that might be applied to them, using Excel as a solution platform.  The professor had asked me to address the course topic from the point of view of one who had used these methods in the real world, and I was glad to do so, recounting my work in supply chain network design, hydro power generation scheduling, routing of empty shipping containers, natural gas supply contract management and various other problems.

During Q&A one of the students asked how a company should determine the appropriate source of resources to use for solving these types of problems – should it be in-house expertise or an outside consultant?

As I told him, to me, this depends on a number of factors, and I gave an example, based on our experience: In our practice we perform supply chain network design studies, and we also license the network design software that we use to our clients, if they desire. A number of clients have engaged us to first do an analysis for them, and then they have licensed the software so that they can then perform future projects themselves, using our initial project as a base.  Many of these clients have used the software very effectively.

Those that have been most successful at using the software in-house, and at performing management science projects in-house in general, have several common characteristics-

  • They are committed to tactical and strategic planning as tools for meeting their business goals,
  • They have enough work in this area, and related areas, to keep an analyst or group of analysts busy full time, due to such factors as
    • The scale and scope of their operations
    • The speed of innovation in their industry
    • The level of complexity of their supply chain and variety of products made, and
    • Their desire for a “continuous improvement” approach as opposed to a “one-time reorganization” approach
  • They have a commitment to maintaining personnel who
    • have the proper skills and training to address these problems, and
    • are allowed the time to work on these problems, rather than being constantly pulled off for “firefighting” short term or operational problems.

Most companies can make good use of management science solution methods, but, as you think about how to do this, try to make a realistic determination of your internal priorities, so you can decide between insourcing and outsourcing, or a mixture of the two.

About Gene Ramsay

Dr. Gene Ramsay is an industry leader in supply chain distribution technology. He has both developed and implemented supply chain network design software in industries such as natural gas distribution, beverage production, chemical distribution and maritime shipping.

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