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Executive Summary
“Insourcing” offers commerce and industry a highly focused, portable
intelligence. As an expert management tool, insourcing delivers
functional solutions over the Internet. A developing aspect of insourcing is
taking on the form of human resources; in this form, insourcing may be
described as “imbedding” specialists at client locations where they perform
specific tasks. Viewed as an entirety, insourcing is comprised of two
components, primarily tools and then services as an evolving capability.
Developed by focused experts, the tools and services are created,
maintained, and
regulated by highly focused providers; delivered over the Internet or
intranets they are operated and directed by the client. “Insourcing’s” most
important attribute resides in the theoretically pure environment in which
the tools and services are created and developed. This environment together
with broad client interaction assures that the tool is always at its most
current level and that the client is using the latest version.
Insourcing offers a myriad number of direct benefits while presenting a host
of potential opportunities. As an expert tool or tool kit, insourcing
provides practical and viable alternatives to the traditional buy or build
decision. In its evolving human resource form, insourcing may be uniquely
capable of challenging incestuous corporate thinking through its method of
introducing new ideas, thoughts, and processes.
Transportation management services and insourcing have a lengthy and
substantive relationship. Beginning as outsourced services in the 1920’s,
the freight audit firm was the precursor to the vast array of freight
transportation management and logistics offerings that are available today
as insourcing tools and services.
This white paper will offer a definition and description of the “Insourcing
Paradigm”, and discuss the opportunities it presents for achieving optimal
performance of the transportation and distribution management functions
within the supply chain.
Background
Words are typically defined by their application and purpose. To effectively
communicate, every word must have an established definition, and should be
collectively understood within the context in which it is being used. An
important goal of effective communication is to create a meaningful
dialogue, the purpose of which ought to be for the exchange of ideas and
information. When opinions differ, persuasion sometimes overshadows this
goal. In other instances, the same word is used in two or more different
contexts or venues. When this occurs, ideally we can draw from those
differences and use them to support new applications and to achieve a better
understanding.
The word “insourcing” is currently used in two different, venues; one is
highly visible and vocal and therefore presents some unique issues. Because
of its current and future importance to the business community as an
effective resource, it is appropriate to firmly establish the current
business definition, application, and purpose of “insourcing”.
The geopolitical use of “insourcing” is getting a great deal of play in the
media and as such there is a high probability that constant reinforcement
will further evolve the developing human resource form of insourcing.
Additionally, “insourcing” is a relatively new business resource and its
initial, popular understanding seems to be based upon the belief that it is
simply the opposite of “outsourcing”. Over simplification has the same
damaging effect as a misguided influence, however, by comparing and
contrasting “outsourcing” with “insourcing” in addition to distinguishing
between the geopolitical and business descriptions, the result should be a
meaningful business definition and description of “insourcing” that will
facilitate its understanding and position it to eventually realize its full
potential.
Insourcing Venues
Within the business community, perhaps because of its newness, insourcing
has several descriptions. In some circles, it is described as facility
management services performed by external managers. This description may be
insufficient because it has an uncanny resemblance with traditional
consulting services. Others in industry, such as the information systems
area seem to describe insourcing by first discussing “outsourcing”; and then
by implication, suggest that insourcing is an installed tool supplied by
outsourcing firms. Considering its purpose and application, insourcing might
be best described universally as: “An externally supplied business resource,
delivered over the Internet or intranets”.
In the geopolitical arena, insourcing has recently become a key word that
has taken on a life of its own, especially in discussions that involve the
global economy. The political community understands insourcing as the
reverse flow of jobs, that is, foreign jobs moving to the United States. The
trade group responsible for coining this application of insourcing
represents the U.S. subsidiaries of Toyota (Japan), Nestlé (Switzerland),
and Siemens (Germany).[1]
The Organization for International Investment (OFII) through its dialogue,
in addition to its apparent primary purpose, may also be responsible for the
development of “insourced human resources”.
The Insourcing Paradigm
A paradigm is defined as, “An archetypical example or pattern that provides
a model for a process or system”.[2]
Given the preceding insourcing discussion, The “Insourcing Paradigm” could
be defined as, “a highly focused, portable intelligence that performs
functional processing and information services in an electronic
environment”.
Genesis of Insourcing
Establishing a basis for insourced freight transportation management tools
should facilitate its understanding, and provide the necessary support for
further development. A solid history, coupled with its logical evolution
creates the necessary environment for market understanding and acceptance.
If you accept the notion that insourcing is the natural extension of
outsourcing, it would reasonably follow that insourced freight
transportation management tools can be traced back to the outsourced freight
audit function. The logical evolution of outsourced freight transportation
management services, meeting up with e-commerce may very well be the genesis
of insourced freight transportation management tools and services.
Achieving optimal freight transportation management performance has always
been an important goal; the profit and performance demands that have been
placed on companies over the last several years have forced them to look for
opportunities in all areas. During this period, there were several highly
visible events that focused senior managements’ attention on transportation
and logistics:
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In the early part of this period Congress
eliminated financial regulation of freight transportation |
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The “dot com” era introduced the freight
transportation exchange. |
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The infamous UPS strike. |
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Electronic commerce began to flourish
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Old line regulated carriers responded to
deregulation with a knee-jerk reflex which resulted in the freight rate
wars. These wars presented an opportunity to satisfy the demand for short
term profit. Senior corporate management learned two very important lessons:
in addition to the rate wars, additional savings were available through the
automated transportation buy/sell programs; supply chain vulnerability was
realized as the UPS strike stopped the movement of freight.
The combination of all of these events, together with their ensuing
operational adaptations, gave rise to “The law of commerce and logistics”
that is, “Increasing the speed of electronic commerce results in the
consequential demand to accelerate the supply chain”.[3]
With e-commerce moving faster and faster; the supply chain was being forced
to reach commensurate speeds. The velocity of the supply chain is influenced
by two primary factors: transportation and production. Driving speeds and
driver time are limited by governmental promulgation and production
techniques have always been influenced by continuous improvement programs.
Reducing or eliminating the space between events in the supply chain,
through improved freight transportation management, methods, process and
tools would eventually prove to be the solution.
Outsourcing vs. Insourcing
Outsourcing and insourcing can both be described generally as, the
acquisition of internally required resources obtained from an external
source. With respect to freight transportation management, the following
outsourced services are fairly common and some were even available at the
beginning: Freight Bill Auditing -- both pre and post, management reports;
Loss and Damage claim handling; and Transportation purchasing. Outsourcing
firms perform these services, as well as others, at their locations; whereas
the insourcing firm would deliver the functional programs over the Internet
or intranets for use by the client. Outsourcing tends to be exclusive, that
is, client interaction is typically limited to processing and rules
questions raised by the vendor. On the other hand, insourcing is inclusive
and these firms interact with their clients in order to lead the market
through innovation and continuous program improvement. Like the Microsoft
business practice of maintaining a high level of program and system
operating performance through heuristic client interaction and automated
Internet downloads, insourcing firms seem to be mimicking this model.
The primary differentiators between insourcing and outsourcing are:
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Concept |
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Business Model |
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Delivery methodologies |
Insourcing is described as a highly focused
portable intelligence that performs functional processing, and information
services, and is operated by the client in an electronic environment.
Insourcing tools are developed by highly focused experts with specific
ability in every aspect of the discipline; these experts are teamed with
experts who have knowledge in design, application and automation. As an
example, freight bill auditing is a complex process with multiple facets and
each of which is capable of providing an abundance of valuable information.
The team objective is to produce an expert intelligence system that is
intuitive, secure, efficient, and effective. Through such techniques as case
based reasoning, the expert intelligence is packaged into an efficient
program; delivered over the Internet, the client uses the tool, and the
insourced program performs all of the tasks associated with the freight
management function. With the tool available 24/7, and operated by and with
the client, information voids are eliminated.
Insourcing-Outsourcing-Hybrid
Very few business functions, services, processes, or applications are
operative in their purest form, nor do they exist in a pure environment
because they are always in a state of flux and transition. Always seeking
improvement and striving for optimal performance makes it difficult to
assign an absolute definition or description.
Outsourcing provided a beneficial alternative to the in-house traffic
department. With the advent of inexpensive computers and computerization,
clever audit firms capitalized on those advantages. Through the economies of
scale, the audit firm could afford to channel its intelligence and financial
resources to develop and improve the associated practices and services
necessary to create transportation management service advantages that
individual companies could not or chose not to do. With appropriate customer
mass, and because of standardized tariffs outsourcing was a reasonably
profitable business for both the provider and the customer.
Deregulation, in 1995, produced a shift from standard, universal tariffs to
individual rate agreements and shippers, consignees, and carriers began to
look less alike; causing the economies of scale for outsourcing to diminish.
Individuality created the opportunity to purchase freight transportation in
a corporate currency and all the while, the transportation and logistics
professionals were gaining seats at the corporate table.
Today, outsourcing remains a viable business alternative for some in-house
tasks and services. Insourcing is an evolving alternative to outsourcing and
is witnessing an increase in providers and customers. A hybrid, representing
both outsourcing and insourcing would best describe the current state of
these externally provided services and tools.
Transitioning From Outsourcing to Insourcing
Corporate visibility of transportation, appreciation of its importance and
value proposition; both converging with the “law of commerce and logistics”
is demanding that control be returned to the client. Highly competent hand
picked client staffs managed by their transportation and logistics
professionals are requiring enabling tools that are capable of, at least
keeping pace with the increasing speed of commerce. Outsourcing, because of
its concept and business model is transitioning to insourcing.
The journey that began in the 1920’s with the shift from in-house freight
bill auditing to outsourcing multiple transportation management services is,
through time and maturation, continuing on its evolutionary trip. The circle
is closing with the introduction of more and more insourced freight
transportation management functions that improve the flow, speed, and
control of the supply chain. As more and more companies regain control of
their freight transportation management functions, the journey will be
completed.
Insourcing for the 21st Century
The ASP (application service provider) and the BPO (business process
outsourcing) business models were designed to effectively and efficiently
deliver both the outsourced and insourced resources. The ASP provides hosted
expert systems on the Internet in a highly secure fashion. The BPO performs
similarly, but also provides selective labor.
Sound macrologistics strategies recognize the important role that each
micrologistics component plays in operating and managing an effective and
efficient supply chain. Each micrologistics component such as:
transportation management, inventory management, and warehouse management is
initially responsible for its respective activity, process, and function.
Alternatively, each incremental solution carries the “connective link” so
that the tool can be aggregated and “rolled up” into succeeding systems,
ultimately into a total system. Other significant advantages of insourcing
are scalability and its typical pricing model. With the ability to select
only the tool or tools that are needed, the user is neither burdened with
excess costs or an unnecessary robust system.
Micrologistics components are associated with their respective elements and
sub-elements. Each of these elements may require a processing tool. The
“Transportation Management” component, perhaps because of its lengthy
history with outsourcing, already has a vast array of both hybrid and actual
insourcing tools and applications that are available today. The advantages
they provide together with their ease of use make them ready to deliver on
their promise.
Conclusion
Achieving superior supply chain performance today is an objective of the
astute company; tomorrow it will be a requirement for its success!
Outsourcing remains a viable, but transitioning business alternative to many
in-house transportation management tasks and services. A hybrid representing
both outsourcing and insourcing describes the current state of these
externally managed services and internally supplied transportation
management functions. Insourcing is the evolving alternative that is
witnessing an increase in providers and customers, as well as new products
and applications.
Insourcing in its purest form gives the client complete control. Today’s
insourced freight transportation management functions are enabling the
professional transportation and logistics managers to effectively and
efficiently manage their respective businesses. With control returned to
these professionals, the insourced enabling tools are empowering their
staffs with the necessary resources to keep pace with the speed of
e-commerce.
Product Information
BLGen; FreightTracing; InsourceAudit; ProductReturns; RoutingGuides; and
TRaIDS; are some of TransportGistics insourcing tools that are immediately
available for your review, consideration, and use. To learn more, please
click on the respective links or contact sales@TransportGistics.com.
Continuation
Please consider this white paper as a continuum in this subject area,
succeeding white papers will address common issues and address them with
common solutions. We encourage our readers to direct any specific questions
or comments to
papers@TransportGistics.com.
[1] The Hill, March 9, 2004, by Josephine Hearn
[2] Microsoft Bookshelf, Microsoft Corporation
[3] Developed and created by TransportGistics, Inc.
Education and Information Resource Group, copyright 2004
Disclaimer
The information presented herein represents the opinion of the author but
not necessarily the opinion of TransportGistics, Inc. nor is it presented as
a legal position or opinion.
All content copyright by TransportGistics, Inc. All rights are reserved. The
authors of the articles retain the copyright to their articles. No material
may be reproduced electronically or in print without the express written
permission for the individual authors and/or TransportGistics, Inc. (papers@TransportGistics.com)
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TransportGistics Products
Solutions
should not be more complicated than the problems they are trying to solve!
Generate, Distribute and Manage
Bills of Lading on the Web
Tracing and Tracking
information in a central location to all authorized users
Freight Bill
Management, Shipment Information, Cost Control Portal
Generate Return Authorizations via least cost
carriers, generate bar coded return Bills of Lading and facilitate the
receiving and accounts payable/receivable processes
Communicate
routing guides rules of engagement and carrier selection
Extend visibility & gain
accountability to the desktop by tracking shipments & goods
Additional Resources
TRANSPORTGISTICS RELEASES NEW
SOLUTION: ProductReturns.com to Remove the Difficulties of Excessive
Freight and Administrative Costs from the Customer Returns Process.
Ingram Micro Implements RoutingGuides.com To Improve Inbound Routing And
Vendor Compliance
Margaret R Pardee Memorial Hospital Implements TRaIDS.net
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