The most attractive operating model for Insourcing versus outsourcing decisions

Assignment

Determine the most attractive operating model and assess the key levers driving the insourcing or outsourcing decision.

Project summary

Make or buy assessment for various geographies across the globe including APAC to assess whether the brand owner should insource or outsource the activities in the market place taking into consideration the growth and availability of providers in the respective territories.

Our approach

• BCI assessed the current operating model and made an in-depth comparison of full insourcing, full outsourcing and hybrid operating models
• BCI evaluated the financial impacts using a costing model which included levers like labour costs, real estate costs, the required picking and storage equipment, IT infrastructure, overhead costs and profits
• BCI conducted a qualitative assessment of the pros and cons of each operating model, including core competences, investments, volume and mix flexibility, knowledge, etc.
• BCI´s model facilitated fact-based decision making on the choice for the right operating model in terms of insource, outsource or move towards a hybrid set up

Result

BCI established a re-usable model to assess the make versus buy decision for supply chain activities per geography. Given the anticipated growth, outsourcing was deemed favorable on the short term, while the insourcing and hybrid models were favorable on the mid and longer term.

Ultimately, our client decided not to outsource the business due to the expected growth, the business strategy and the trade-off analysis. Based on the diminishing advantages of the shared user facility and higher capital charges for a 3PL, the insourcing option will become more favorable over time from a space and IT cost perspective. In addition, the insourcing option is more beneficial than outsourcing as equipment cost grow less. The outsourcing option on the other hand is more beneficial from a labor cost perspective. Salaries of the workforce will gradually increase over time in the insourced option whereas a 3PL would be able to gain in efficiency due to shared facilities, management and workforce pooling.