Outsourcing, 2013: understanding your suppliers' suppliers

How collaboration trumps costs in today's outsourcing deals.

The way a vendor fits into the architecture of supply chains may have more bearing on an outsourcing decision than strictly costs. Cloud computing may help pave the way to the building of outsourcing communities that will open up opportunities for new vendors.  

In many ways, outsourcing needs to be a well-synchronized dance between hub companies and their suppliers. That's one of the key takeaways of a recent Wharton School panel held in Tokyo, reported in Knowledge@Wharton and led by Wharton professor of operations and information management Morris Cohen.

One of the panelists, Beth Anderson, vice president at Boeing, states that her company conducts a lot of behind-the-scenes research before moving forward. The aircraft systems manufacturer goes "through the entire cycle of designing the airplane and designing the production system, and understanding who our customers are going to be and how we're going to support [the aircraft] once it goes into service."

By next year, Boeing expects to be sourcing more than one billion parts from a total of 7,500 suppliers across 73 countries to build 700 planes. "It [takes] really well choreographed logistics ... to bring those airplanes together." She noted that even a seemingly simple window shade is sourced from seven suppliers.

Another panelist at the Wharton event, Kenji Mizuno, senior vice president with Fujitsu, says his company relies on a "virtual global supply chain management system" for its day-to-day global business. "We look at the customer orders, factory lines and parts supplies," he says.

The Wharton panel shed light on the internal workings of outsourcing deals, and cloud computing is opening up new frontiers for business-to-business interactions as well. Most notably, vendors are becoming parts of online community networks affiliated with major hubs, capable of sharing information on business lines, transaction histories and analytics. Enterprises not only need to be able to look at order status and inventory among their suppliers, but also among their suppliers' suppliers. Today's outsourcing hinges more on ability to collaborate than simply providing the lowest-cost goods or services.

This post was originally published on Smartplanet.com