Outsourcing is gaining in popularity

By John J. Keough -- Industrial Distribution, 9/1/2000

Outsourcing is becoming increasingly popular with industrial distributors. Results from Industrial Distribution's 54th Annual Survey of Distributor Operations show that distributors today are outsourcing a number of business functions such as accounting, Web site design and transportation services. In fact, more than 90 percent of distributors say they outsource transportation services, including small package delivery, trucking, and air freight.

In addition, 46 percent of the responding distributors report that they outsource Web site maintenance. Among the other activities that distributors report outsourcing are fleet maintenance (26 percent), freight payments (12 percent) and logistics/warehouse software systems (10 percent).

Outsourcing allows distributors to concentrate on their core competencies: distributing industrial products, providing technical assistance to customers and contributing to the bottom line, according to a report by senior editor Susan Srikonda (p. 64).

Distribution is not unlike other businesses looking to reorganize their operations into "core" and "non-core" activities. Distributors are focusing on what they do best and looking for other business partners to focus on non-distribution related operational activities.

Outsourcing today has become a strategic advantage for many companies. According to the Outsourcing Institute, a professional association and executive network that provides information on outsourcing, three common business functions are currently outsourced: information technology, operations and logistics.

The most common reasons for outsourcing include: redirection of company focus, release of company resources, reduction in operating costs and lack of internal resources.

While outsourcing is increasing among distributors, other industries are turning to distribution for their own outsourcing needs. In fact, our study shows that distributors today have become more of a purchasing arm for their customers than a marketing arm for their manufacturers. Purchasing departments, in some cases because of cutbacks, are relying on distributors to service their maintenance equipment, conduct training classes, take over storeroom and inventory management requirements, and become an integral part of the plant management team.

The drive to increase outsourcing activities will be spurred by the increasing use of technology, particularly the Internet, where information can be readily exchanged across the entire supply chain.