This Week on SCDigest:
Supply Chain Core versus Context
New Material Handling Tech Notes
Supply Chain Graphic of the Week and Supply Chain by the Numbers
This Week's Cartoon Caption Contest Winner
SCDigest On-Target e-Magazine
Forecasting Lessons For Management
S&OP at Risk?
This Week on "Distribution Digest"
Trivia  Feedback

Become a Sponsor
SCDigest Home Page  
  Newsletter Archives February 4 , 2010 - Supply Chain Digest Newsletter

Featured Sponsor:  HighJump Software


WMS on a Cloud – Real-World Business Option, or Just Fluff?

Warehouse management systems are now available in an on-demand delivery model, offering a lower cost, reduced risk option. Here are four reasons to consider WMS on the cloud for your warehouse or DC.

Download free WMS report


The New Generation of Automated Case Picking in Distribution

Live Broadcast

Tuesday, February 9, 2010

Based on our Groundbreaking Report, we summarize these exciting new technologies tools.

New! Materials Handling Tech Notes

The First Analytic Service for the Materials Handling Industry

First Tech Note: Advances in Conveyor Technology increasing System Flexibility


Now Available From HighJump

2010 Warehouse Management RFP Template

Created by leading supply chain consultants, this WMS RFP template is the end result of intensive research with hundreds of logistics professionals. Require all vendors to prove the value of their solutions BEFORE you make a buying decision.
This Week's Supply Chain News Bites
Only from SCDigest

Supply Chain Graphic of the Week: World Bank Rankings of Logistics Performance by Country


This Week's Supply Chain by the Numbers Feb. 4, 2010: Inventory Growth Drives GDP; Hershey's Finds Supply Chain "Candy"; Scary Rise in Truckload Trailers Taken Last Year; Union Label Peels Back in 2009


New Contest Starting

February 1, 2010

Send In Your Entry For

This Week's Contest!

Winner Announced Next Thursday!

Each Week:

Global Supply Chain
Trends and Issues
New! Forecasting Insights

Michael Gilliland and Emily Rodriguez


Forecasting Lessons for Management

Forecast Value Added Approach May Help Educate your Management Team

Guest Column

Trevor Miles



S&OP at Risk

Keeping the Sales and Operations Planning Heartbeat Going


HolsteHolste's Blog: The Long Road to Economic Recovery is Fraught with Many Twists and Turns

Top Story: Selection Criteria for Automated Case Picking Systems in Distribution

Vendor News: Motorola announces its first Voice-only terminal for distribution applications.


Visit Distribution Digest



What day of the week has the least number of cargo theft incidents?

Click to find the answer below
Supply Chain Core versus Context

We are still assessing, it seems, a number of business and supply chain questions coming out of this “great recession.”


One of those surely is going to involve still more analysis – and eventual action – relative to “insourcing” versus outsourcing.


Today’s column is in fact going to be one of a brief series (spread over the next couple of months) on this topic.


There is simply no question, from what I have read lately and many of the conversations I have had with SCM execs – that this economic mess has led to an acceleration of CEO interest in continuing to move their companies to more variable cost structures – and supply chain is clearly in the cross hairs of that analysis.


While I have been planning these columns for awhile, the specific trigger this week was listening to the Hershey Foods Q4 earnings call. As you may or may not know, Hershey announced in 2007 a “global supply chain transformation” program that – traumatic to many – eventually included the outsourcing for the first time of chocolate production, always before considered a “core competency.” Not so much anymore, it seems.

Gilmore Says:

"Core,” says Moore, is “any aspect of a company’s operation that creates differentiation leading to customer preference during a purchase decision."

What do you say?

Send us
your Feedback here

It looks like a good move, as, despite some pretty significant costs for closing down plants, Hershey’s CFO told analysts that the move was delivering big savings already, with many more hundreds of millions  to come over the next decade.


Most of us are familiar with a common framework for insource versus outsource analysis, which uses a typical 2 x 2 matrix (see image below; full size available by clicking link below it). On one dimension is the level of importance of a supply chain function or process to an organization (high or low); on the other dimension is the organization’s competence or effectiveness at the function/process (high or low).

High/high combos are clear “keepers;” low-low are clear outsourcing candidates. The high-low/low high combinations require more nuanced analysis, with some bias towards outsourcing functions of high importance and low competence, as it is likely you can find an outsourcer that can in fact do this important thing well.


click for larger image


But there is another riff on this topic that is equally fascinating and in many ways better.  It comes from Geoffrey Moore, the well-known business writer and thinker, who got on the map from my view with his book Crossing the Chasm, followed by a string of other business best sellers.


I’ve had the pleasure of meeting Moore a couple of times, and he is both very smart and a very nice guy. At one event where I saw him present, in fact, we had a follow up conversation on material from his book Dealing with Darwin, which is what my discussion is about here.


In that book, Moore focuses on the absolute business need for continuous innovation. I will note he is largely associated with the high tech industry, where innovation is clearly the lifeblood of success, but that’s now the case in almost every industry. CEO after CEO is saying it. As just one example, I had a recent discussion with a VP of Logistics at a private label consumer packaged goods manufacturer who told me retailers are increasingly pressing his company for innovative new products, not just knock-offs of branded goods.


I can’t hope to do full justice to all Moore’s thinking here, but on this particular point, he says simply that more corporate resources must be focused on innovation, and that in the end comes from outsourcing what isn’t “core” and refocusing those resources on innovation activity.


From this then comes his rather well known model of “core” versus “context.”


What is “core?” Interesting to me, “core,” says Moore, is “any aspect of a company’s operation that creates differentiation leading to customer preference during a purchase decision.


“Context,” conversely, is basically “everything else.” Moore says that this context work can be important - and even highly valued - but that does not mean it contributes to customer differentiation.


So, his model of what to keep and what to outsource is a little different, as shown in graphic below.

click for larger image


One different and commendable aspect of Moore’s approach is that he says you must re-deploy employees affected by the outsourcing move back into more innovative or core processes. Otherwise, he told me not long after this book came out in 2005, employees will (smartly, for their own good) strongly resist making outsourcing programs work. His vision is really one of a virtuous cycle that leads to continuous innovation.


He also makes another important point. What is “core” today is “context” tomorrow. In other words, processes tend to become more commoditized over time – maybe even rapidly.


The logic makes a lot of sense. But there are issues, I think.


1. How many companies really ever “re-deploy” employees (blue or white collar) impacted by supply chain outsourcing decision?

2. The decisions are often permanent – in other words, take something like demand planning or transportation management. Is it not possible that what might be context today could re-emerge as core later as practices and technologies change? But once it’s gone, can you ever really bring it back?

3. Supply chain cost is a tricky one: Right now obviously - but really a continuing trend even before the recession – “price” is one heck of a factor in “customer preference.” Look no further than the strong growth of lower priced private label goods in 2009. So how is cost advantage – now, or in the future – really considered in this model? The Chinese are winning product markets in part through “cost innovation.”

So in the end I am note sure. There is much logic in Moore’s model, but not perfect logic. The supply chain is a real conundrum – for example, total cost might even be higher in an outsourced model in good times, but much lower in bad times by having a more variable cost structure. My friend and SCDigest contributor Gene Tyndall says you can outsource the execution but must maintain the management, so you can bring it back when it makes sense - but is this really what most companies really do?


I don’t fully know, and the answer as usual is certainly “it depends.” But the "core versus context" question is getting still more steam in corporations worldwide – and SCM professionals better be prepared to defend their case.

New cartoon caption contest nearby - readers seem to be really enjoying this.

What are your thoughts on supply chain outsourcing? What do you think of the "core versus context' model? Let us know your thoughts at the Feedback button below.

Send an Email

Web Page/Printable Version of Column


Do you use an RSS reader? Do you have a MyYahoo! or personalized Google page?

For these and more you can have SCDigest delivered right to your personal pages, all week long.

You can subscribe to our RSS feeds in two ways:

  1. Copy our RSS link into your RSS reader - it's easy!

  2. Click on a button below to quickly add it to your favorite readers.

Catching up as usual on a variety of topics, led by our piece on Supply Chain at the Core, which covered a lot of ground relative to the supply chain's impact on company success.

That includes our Feedback of the Week from Geoff Walker of OneSteel, who says these tough economic times have forced greater supply chain integration with the business. Other letters on this topic, plus packaging and transportation and Johnson Controls new inventory dashboard are below - enjpy!

Feedback of the Week - on Supply Chain at the Core:


These tough economic times have called for tight Integration within our Supply Chain.  Every opportunity through the organizations integrated value chain, to improve service, reduce costs or maximise value is being considered.  It is no longer good enough to think that efficiency of the parts will lead to an efficient whole.  We have discovered that visibility of information, single source of data and aligned plans deliver the most efficient outcome – all of which are driven by supply chain management.

The integration of ideas, data, values and decisions is driving the alignment of the organisation to deliver a better result. This integration has visibly highlighted waste and driven cost improvements in the organisation.  Holding inventory at historical low levels is being achieved through collaboration with customers on demand forecast; alignment of MOQ’s, EOQ’s and batch sizes; disciplined S&OP processes; and the driving to deliver the plan.

Helping this improvement is the visible financial outcomes of the S&OP plans.  Understanding the long chain EBIT and cash impacts of the plan takes precedence over a plan that makes one part of the business efficient.  We have learnt that we can pay more within parts of the supply chain to deliver a better overall company outcome.  


Geoff Walker

OneSteel General Manager Supply Chain


More on Supply Chain at the Core:


I read your article this morning and can confirm the companies are looking hard at their supply chains to deliver capital to their companies

After three days of back to back meetings with SMB owners and management I found this very consistent. Reviews of their suppliers, agreements issues of spend leakage.  Some are making simple changes while others are investing in new technology to be able to change the velocity of their supply chains and their efficiency in conducting their transactions.

Everything from the way they quote their customers to the invoicing process, all the order fulfillment processes are under review and challenging the way things are being done.

One owner of a small business said it plainly… I have no option but to improve my supply chain operations, I just won’t be competitive if I don’t improve.

Enjoyed your writing thank you

Mike Flanagan

Less Software

First of all, I would have loved to have seen that Powerpoint printout, could be a great stock to go short on.


Of course the economic mess has led to better supply chains, at least among those who have survived.  Necessity is the mother of invention, after all.  The smart companies who have been aggressively seeking improvement previous to the current difficulty are probably doing much better than those who were “fat and happy” as they coasted along on good profits and assumed that because they were profitable that they must be doing everything right.  Planning must now be an interesting exercise, since in the past companies may have counted on 5% growth, and now they are staring at 40% drops in demand.


Bruce H. Anderson

McLane Company, Inc.

On Real-Time Dashboards:


I think this is an excellent step taken to depict the health of one's inventory operations (perhaps we can expect such technology for supply chain health in the near future?).

This dashboard, from what I can gather, can be viewed as a a form of real-time monitoring and I think this is wonderful. Perhaps, the complexities of optimization can be added on (and masked) to depict what the actual health should be given the current state of operations, i.e., the optimal state (is this already present under the Investment bar with 'Actual' and 'Model'?) This would allow companies to more easily aim for an immediate (and highly visible) amelioration goal.

It sure beats having to stare at graphs the whole day long.

Koh Niak Wu

Singapore Institute of Manufacturing Technology

On Packaging and Transportation:

Reduction of material in items that are ‘overpackaged’ is a great move to reduce waste and improve efficiency.

Some caution is needed though; we are seeing reengineered items that fail to handle the rigors of transit and are arriving in shifted and crushed conditions.  This is driving charge backs to the vendors and lost time for the operation.  The diagram offered in your blurb demonstrates this challenge in that the redesigned skid has lost its ‘tie’ and the product is now in a less stable chimney stacked arrangement.  Freight in this configuration is more prone to shifting and crushing.  The solution the vendors are driven to include more corner boarding, capping, strapping, stretch wrapping and increased dunnage  which works to defeat the premise!

On balance I think the economics overall favor the packaging changes, but it may not be a simple thing to optimize the change and quantify the end–to–end benefit.


Tom Miralia

Distribution Technology


What day of the week has the least number of cargo theft incidents?


Wednesday, followed by Tuesday and Thursday. Why? Because theft is most common during or near a weekend, when trailers with goods in them are often parked unattended for shipment the next week.