THE INSOURCING PARADIGM,

Achieving Optimal Transportation Management Performance

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: 

In the early part of this period Congress eliminated financial regulation of freight transportation

The “dot com” era introduced the freight transportation exchange.

The infamous UPS strike.

Electronic commerce began to flourish 

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:

Concept

Business Model

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 21^st 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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