Continued Growth in Outsourcing, Including Supply Chain and Logistics Services

Part of the re-engineering process at employers has been a boom in “outsourcing,” or the use of outside specialty firms to do chores that firms formerly performed through in-house departments. One of the largest fields of outsourcing growth has long been in computer departments. IBM and Accenture are among the global leaders in this area. Cloud computing (the use of outsourced, remote servers to run computer functions) is the latest major trend in this regard, and cloud services firms are enjoying soaring growth.

However, many other business functions are commonly outsourced. ServiceMaster takes over janitorial tasks, building management and maintenance functions for giant corporate office campuses and industrial facilities. Another company outsources all of the food warehousing and distribution for nationwide restaurant chains. Why? Because it can run trucks and warehouses more efficiently while its clients concentrate on running restaurants.

While the 1960s, ’70s and ’80s saw many firms frantically trying to do all tasks in-house, recent trends are quite different. As a period noted for rising productivity and efficiency, the 1990s and 2000s combined were an era of specialization and focus. Companies may do a better job by focusing on their core tasks, while allowing outside firms to provide support and maintenance needs. That trend will continue to be powerful over the long term. Outsourcing, which rapidly gained popularity, will persist in leading the way to higher efficiency and profits. Many outsourced services companies continue to grow, and they will create (and displace) large numbers of jobs.

One of the biggest fields in outsourcing is supply chain and logistics management. Companies offering services in this field include giant transportation companies like FedEx and UPS. “Supply chain” refers to the entire set of providers of supplies and services that are involved in creating and delivering a component or end product. For example, for an automobile manufacturer like Ford, the supply chain includes companies that make tires, batteries, interior components and engine parts, as well as the trucks and trains that ship these parts and the warehouses that hold them. This supply chain supports Ford’s own manufacturing and assembly plants. At the end of Ford’s business chain lie the automobile dealers that receive completed cars and deliver them to the end customers. Another example: For a clothing store chain like The Gap, the supply chain includes clothing designers, clothing manufacturers and the warehouses and transportation systems that deliver completed clothes to the stores. The Gap’s supply chain is located across dozens of nations.

Logistics is the art of moving goods through the supply chain. Supply chains are so complex and so critical to a company’s operations that there are countless ways to automate, improve efficiencies and cut costs. Many manufacturers and retailers are outsourcing all or part of their logistics needs to firms that specialize in creating efficiencies and saving costs. Logistics and supply chain companies have been growing rapidly over the past several years, and creating large numbers of jobs. A concept you should be familiar with is Third Party Logistics (“3PL”), a system whereby a specialist firm in logistics provides a variety of transportation, warehousing and logistics-related services to its clients. These tasks were previously performed in-house by the client. When 3PL services are provided within the client’s own facilities, it can also be referred to as “Insourcing.” In other words, you might find yourself working for UPS at a site within a distribution company that has no other ties to UPS.

Robotics and Artificial Intelligence (AI) are already having a significant effect on the way that warehouses and distribution centers are operated, including those of outsourced 3PL (third party logistics) companies. This means higher capital investment, but lower overall management and manpower requirements.

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