EVOLUTION OF TRADITIONAL OUTSOURCING INTO INNOVATIVE INTELLIGENT OUTSOURCING - SMARTSOURCING

The concept and practice of traditional outsourcing is certainly not a new concept. Globalisation, competition and other market pressures have driven more businesses to consider using logistics provider to increase efficiency and effectiveness [11]. Many companies have successfully used traditional outsourcing to lower costs and have improved the bottom line. However, unless the company’s efforts are unusually good, true competitive advantage is fleeting when competitors begin outsourcing and achieving similar results [2]. Some companies have discovered even greater returns are possible and are now using advanced form of outsourcing – intelligent outsourcing or smartsourcing, to drive new revenues, quicken time-to-market, and increase innovation [2]. This shift, from traditional outsourcing to intelligent outsourcing smartsourcing which has become a competitive advantage and is likely over time to become a competitive necessity for all, will be analysed in this paper.


INTRODUCTION
Not since the industrial revolution has there been such a dramatic change in how -and where -work is performed.In today's marketplace, company's products and services must be marketed and sold against global competitors with larger, cheaper, and highly skilled workforce [15].Organizations today are faced by significant quandaries, including how to: cut costs while increasing innovation; expand business -and maintain accountabilitywhile moving operations offsite; increase productivity and efficiency [15].
The increase in the world trade has been the powerhouse also for the growth in the outsourcing market.As more products are sourced across borders, the complexity of the supply chain increases and the com-panies seek to mitigate the risk by outsourcing their logistics and supply chain operations [3].Additionally, the smart ones spend it on smartsourcing, which goes a step further by showing companies how to partner with service providers strategically -not only to cut costs but to increase innovation as well.Smartsourcing shows how to abandon the status quo -and make outsourcing an opportunity to improve operations across the full spectrum of the business [15].
The aim of this paper is to explore the basic ingredients of smartsourcing and build a bridge between outsourcing and smartsourcing, which is also the main purpose of the paper.It frames the forces that have defined outsourcing to the present and discusses what will define outsourcing in the next era.The concepts of the fourth party logistics, growth and innovations are addressed, as well as the bases of smartsourcing.It will reveal also what smartsourcing is, what it does and how it works.

BACKGROUND OF 4PL OUTSOURCING
The definitions of supply chain management and outsourcing should be presented to provide the base for understanding smartsourcing, because these are crucial elements that establish the background for smartsourcing.

Supply chain management
In 1986, the Council of Logistics Management (CLM) defined logistics management as: «The process of planning, implementing, and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods, and related information flow from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements« [12].
The important term in this definition is »information flow« because supply chain management evolved from the standpoint of information integrated material flow management.This emphasises the reduction in inventory within and across firms and clarifies the difference between more traditional approaches and integrated approaches across firm boundaries [12].
The first appearance of the concept of supply chain management in the literature was in mid-1980s.It was simply defined as the integration of business processes across the supply chain.These business processes included activities like sourcing, procurement, warehousing, transportation, production scheduling, inventory management and customer service to move goods through to the customer.The evolution towards an integrated supply chain happened through embracing suppliers and customers.It embodied a change from product orientation to customer orientation and a change in the relationship between the parties from the adversarial attitude of conflict to one of mutual support and cooperation [12].

Supply chain outsourcing (4PL)
Public warehousing may be the oldest form of outsourcing in logistics, then marketing, packaging, transportation, distribution, import and export were added to the list.After that, third party providers are being utilised for value-added activities [12].The outsourcing of the logistics activities to Third-Party Logistics (3PL) Service Providers has grown widely over the last decades.3PL Service Providers manage complex distribution and logistics network requirements.The Council of Supply Chain Management Professionals (CSCMP) has defined the Third-Party Logistics (3PL) as the outsourcing of all or some of the company's logistics operations to a specialized company.A 3PL Service Provider mainly offers a wide range of outsourced services based on the physical assets and information technology, like warehousing, transportation, packaging, IT Applications (e. g.EDI, RFID and WMS), consolidation, inventory control and customer service.The 3PL Service Provider aims to provide a number of logistics solutions that will lead to lower logistics costs for its customers and a considerable logistics network improvement [1].
In the last and present wave, there is also a 4PL vendor.The concept of Fourth-Party Logistics (4PL) Provider was created and first defined in1996 by Accenture as the use of a consulting firm to integrate and manage the company's logistics resources and LSP partners including Third-Party Logistics (3PL) Providers and other transportation companies.The 4PL Service Provider is an external organization which completely integrates its client's logistics network.Planning and management of the total logistics network are put into hands of an external company that acts as the single contact between the client and the 3PL Service Providers (Figure 1).The core value offered by a 4PL firm is in the management and integration of the information flow between the outsourced logistics network partners and the enterprises that employ them.By taking care of the planning, steering and controlling of all logistics procedures, the Fourth-Party Logistics (4PL) Service Provider is able to combine the economy of skill with the economy of scale.Fourth-Party Logistics (4PL) is the next generation of LSP firms, with operations that extend beyond 3PL and include logistics network analysis, design and planning.4PL providers make it possible for the companies to develop a superior expertise in transportation, warehousing and other logistics fields [1].

Global supply chain reaction
Speed, globalization and consolidation are all driving today's logistics marketplace.
With the increase in the number of enterprises involved in global logistics, and the growth in the number of logistics processing points, supply chains have become less agile.Manufacturers and retailers want to develop "demand driven" supply chains, in which suppliers manufacture products in the shortest possible time with the least amount of inventory.To achieve this goal, logistics service providers need to improve visibility of orders in the supply chain.They must reduce inventories and improve demand response through improved collaboration with partners up and down the supply chain.Finally, they must improve the command and control structure within the enterprise to handle exceptions [17].
The battle for leadership has shifted from company versus company to one company's supply chain versus another's.Competition is no longer between companies but between supply chains.Supply chain management is one of the most crucial aspects of business for competitive advantage [12].
As many shippers extend operations and thus their supply chains across markets and continents, their lo-Promet -  Source: Peters [10] gistics providers were forced to do the same.Logistics service providers and carriers have grown in size and reach through expansion and acquisition, expanding their service portfolio, their transportation and warehousing service network, and their supplier base.
As also the environment for logistics outsourcing has changed, so have the suppliers of logistics services.They intend to do the best job of managing complexity in the supply chain.Some are addressing the global challenge by offering services overseas, some are demonstrating superiority in collaboration and information exchange by developing a network infrastructure that is superior to that offered by competitors, or even the customer.Some will demonstrate superiority in the ability to outsource non-core activities.These could include postponement operations, inbound material sequencing, just-in-time deliveries, information capture and management, and consolidation of freight.Some will show outstanding skills in reverse logistics, including customer returns and end-of-life management [8].The most successful logistics providers will do all of this.In essence, the winners will be those service providers who best adapt to the changing supply chain environment while delivering agility and innovation throughout the organization processes [8].

Innovation -the engine of growth
Innovation is one of the key levers that companies can use to realize parallel strategy of growth and increased efficiency.New, improved, value-added products and services make areal impression on the market and help a company stand out from the competition.
When companies think about innovation, they often concentrate on innovations in products and services.In fact, this is only part of the picture.Broad--based innovation covers five areas: products and services, business model, processes, supply chain, customer care [4].
Companies should innovate in all five areas above.In doing so, they will be pursuing both strands of the parallel business strategy: generating growth opportunities while reducing costs.However, the immediate effects of innovation are quite different for different areas.Successful product innovations, for example, have an immediate impact on corporate growth, allowing the company to reap the rewards of leading the field, at least until imitators come along.Process innovations and innovations in the supply chain, on the other hand, lead primarily to efficient gains and cost savings.While business model innovations and innovations in customer care have a strong impact along both strategic dimensions [4].
Organizations experience innovation in all the functional areas but typically have a core competency in only one of these areas.One of the first mandates for any organization attempting to achieve process excellence is to clearly identify which of these three types of innovation represent their core competency (i.e. separate the core innovative differentiators of the business from those that are the operational outliers) [14].
An interesting outcome of this analysis for most organizations is that while the areas of core innovative competency may be the source of top-line growth, it is often the non-core areas that consume the largest percentage of your precious resources and management time.Non-core areas consume resources and starve the innovation of your company and are responsible for shrinking or stunting bottom-line growth.
Smartsourcing enables an organization to focus on its core competency while its outsourcing partner takes the responsibility for innovating change and cost control in non-core operations [14].No organization can escape the need for innovation which means they should spend resources on that.It is a difficult puzzle to solve, to cut cost and innovate faster.

BEYOND OUTSOURCING TO SMARTSOURCING
Can the seemingly contradictory mandates of cost--cutting and innovation be integrated?The view presented in this chapter contends that they must be integrated through the use of an innovative strategy called smartsourcing, which leverages the competencies of service providers in order to achieve a significant increase in total innovative capacity.

What is smartsourcing?
Smartsourcing, simply put means outsourcing intelligently.It is about intelligently shedding non-core production and services while taking the innovative capacity that remains and levering it in a way that would simply have been impossible under the burden of non-core activities [15].
Smartsourcing is not synonymous with outsourcing.Outsourcing is only one part of smartsourcing.Smartsourcing is the evolution of outsourcing to a more sophisticated and effective model of working with all of your partners and processes, not just those that are easily transported to an outside party [15].
Even if an organisation can define the areas that constitute its high performance core competencies and those that make up its low performing non-core activities and then figure out how to partner effectively to bolster the latter, the remaining grey area be-tween what an organisation does well and what it does poorly becomes a gap.This gap becomes the cost of doing business.Smarsourcing is about bridging the gap [15].
Smartsourcing provides a lens through which you can look at the spectrum of your organisation capabilities in order to determine how to best achieve the highest level of performance, cost and innovation in each [15].
The sort of partnership promoted by smartsourcing between an organisation and its partners not only achieves cost savings but it also establishes pre-eminence and differentiation.Smartsourcing looks at how organizations will need to partner with service providers to integrate competencies in order to achieve substantial innovations across the full spectrum of their business [14].

Difference between outsourcing and smartsourcing
The greatest risk in traditional outsourcing is focusing exclusively on costs and ignoring concurrent innovation initiative (Table 1).While outsourcing will often deliver reduced costs, the focus of outsourcing is too often replicating the status quo.Improving process excellence and promoting are not prime objectives of the outsourcing process.Smartsourcing, on the other hand, is accompanied by a renewed attention on excellence and innovation among the organization core process initiatives.This sort of partnership not only achieves cost savings, but it also establishes pre-eminence and differentiation.While the focus of outsourcing is on cost cutting, smartsourcing refocuses managers on building innovative capacity within organizations.
Many organizations that pursue an outsourcing relationship operate under the premise that there are core groups of distinct and separate processes (see Figure 2 in dark grey) that are candidates for outsourcing.While this can result in dramatic cost savings, it limits the ability of an organization to fully focus on its core competencies, as much of its time and efforts is still expanded on peripheral processes that do not add high customer value or differentiate the organization in its industry.For example, in Figure 2 the manufacturer should focus on the core competency of production.However, they are likely to be spending much more time and money on the many peripheral activities where their differentiation, competency, and customer value are relatively low.When sourcing or service partnership are created, the relationship with the service partner is fairly isolated and the handoffs few and well defined.
The smartsourcing strategy creates a much more intimate relationship between the organization and its service partner.Smartsourcing increases innovation throughout the range of process from core to non--core, allowing organizations to focus on their most critical areas of differentiation and customer value, while also achieving high levels of innovation in non--core operations.In Figure 3 this means increasing the differentiation, competency, and customer value across the spectrum of activities involved in production [15].

What does smartsourcing do?
Smartsourcing achieves the objectives of lower costs and shorter cycle times while delivering agility and innovation throughout all of the organization processes.Smartsourcing creates value in four key ways by: decreasing in costs, increasing innovation, transferring risk, and optimizing risk.
Decreasing in costs refers to non-core but essential functions.Unfortunately, funding them is often at the expense of innovation in core areas.Decrease in costs must be done without degradation in service of any kind.The right smartsourcing provider should offer scale, increased utilization, and process improvement for company base activities.As a result, it will cost less over time to keep the lights on, even as the demands on the systems stay consistent or increase.[15] Increasing innovation: by adding the development and enhancement activities to the scope of the smartsourcing relationships, the company allows the smartsourcing partner the opportunity to increase the value it is delivering -effectively, the smartsourcing provider is reinvesting the savings it has identified by decreasing costs into the value added, innovation-related processes while company focuses on what it can do best [15].The idea is that the »smart-sourcer« can redeploy those savings more efficiently than the company could on its own [16].
Transferring risk between partners: Smartsourcing introduces risk transfer as an integral part of a sourcing partnership.
Optimizing risk: Today each firm carries its own operational risk.As it learns to partner better, and share risk with its partners, its risk profile will change with respect to those processes it sources from partners.It will move some risks it currently has in its own operations to the partner best equipped to absorb it.

How does smartsourcing work?
Smartsourcing in contrast to traditional outsourcing looks at how organizations will need to partner with service providers to integrate competencies in order to achieve substantial innovations across the full spectrum of their business [14].Here is how smartsourcing helps innovate: -Company can find smartsourcing partner who is ready to evolve with its strategy and process.-Encourage transparency between the offshore and onshore resources so that the smartsourcing team just does not wait for commands from the com- Source: Koulopoulos [14] pany, but rather participates proactively in its development.
-Company can delegate more to the smartsourcing team and free its resources to achieve innovation.-Innovation can happen offshore too.So company should create a trust based relationship and make its offshore talent accountable for the product and results.-While onshore team is fire fighting, let the smartsourcing team create prototypes, evaluate technologies, define quality benchmarks, create processes and even contribute to product ideas.
Businesses with smartsourcing strategy require integration, cooperation and collaboration, which in turn demand aligned objectives, open communication, sharing of resources, risks and rewards [5].
Collaboration can best be described as an inter-organisational relationship type in which the participating parties agree to invest resources, mutually achieve goals, share information, resources, rewards and responsibilities as well as jointly make decisions and solve problems.Collaboration is based on mutual trust, openness, shared risk and shared rewards that yield competitive advantage, resulting in better performance than it would be without the collaboration.It implies cooperation and some form of alliance between two or more organisations.These are formed for sharing the costs of large investments, pooling and spreading of risk, and access to complementary resources [5].Collaboration in smartsourcing is important for innovation as partners realise the various benefits of innovation such as high quality, lower costs, more timely delivery, efficient operations and effective coordination (Figure 4) [5].
Smartsourcing is founded on a trusted relationship between the organization and its smartsourcing partner that supports operational and strategic excellence.In fact, smartsourcing requires intimate bond of trust and accountability between the organization and its outside provider.Lasting trust takes time to develop, though it can be speeded up by focusing on the right things -competence, commitment and intimacy.
Trust is »we«-, not »me«-focused.Personal needs are achieved as result of trust-based relationships [6].Conversely, high trust environments like smartsourcing partnership leads to innovation [6] in core as well as non-core processes and opens the doors to new opportunities for outsourcing processes that otherwise may not have been considered as candidates for outsourcing [14].
Savvy smartsourcing partners not only encourage this sort of relationship but work collaboratively on an ongoing basis with their clients to identify the areas that are best suited to outsourcing.An open collaboration and high level of transparency in this exercise are critical to establishing the sort of communication, trust, and long-term understanding of the benefits that smartsourcing can bring to the table [14].

Focus on innovation in the logistics industry
While innovation has always been judged as the growth engine of society in the field of logistics its importance is still undervalued.Focus on innovation is what the logistics industry needs to substantially improve performance.With globalization and structural industry changes leading to more complex and interlinked supply chains, the executives worldwide are realizing that logistics has to centre on the customer and define innovation from their viewpoint.Innovation is useless unless it delivers added value to the customer.
Innovation in the logistics sector is created around new or improved: capabilities and processes: this includes improvements in managerial systems, skill development of logistics specialists and supply chain managers as well as the adoption of information technology based systems.products and services: innovation in this sector ranges from innovations relating to hardware, such as the design of rolling stock and trucks, to the operation of the transporting mechanism, whether it be a train, truck, plane or ship, to the methods and practices used for transporting goods.major infrastructure innovation: this includes improvements of infrastructure and increasing capacity.supply chain innovation: the rise of supply chains has been an innovation in itself, resulting in freight flowing seamlessly from collecting raw materials to delivering goods ready for consumption [13].

Supply chain innovation
Globalisation has created supply chains that are longer and more complex.Yet, this very globalization and the accompanying economic successes are forcing many companies to rethink their supply-chain strategies and solutions.The fact is, when production and distribution operations are located around the world, the supply chain should never rest.The competitive challenge is to make them more effective.Four rules to enhance supply chain strategy are the following: -Visibility -share and use information throughout the chain.-Agility -make your supply chain highly responsive to fluctuations in demand.-Velocity -compress unproductive time in the supply chain by careful process mapping.-Partnership -collaborate with buyers and suppliers to create reliable supply with minimal inventories, collaborate with logistics providers to create innovations.
Communications are exchanged 24/7, processes and related problems occur around the clock, and solutions are required at every hour.Formerly discrete supply lines converge, highlighting the need for collaboration and coordination.Globalization increases the need for planning and supply-chain visibility.Companies want to plan corporately for global coordination, then execute locally.To do this, they require richer functionality for sales and operations planning as well as improved supply-chain visibility.Companies that fail to enhance visibility along the supply chain can run into serious problems.The good news is that such visibility technology is relatively simple to build, use, and administer.
Changing customer and technological requirements force manufacturers to develop agile supply chain capabilities in order to be competitive.The agility of a supply chain is the measure of how well the relationships involved in the processes mentioned above enhance four pivotal objectives of agile manufacturing.These objectives are customer enrichment ahead of competitors, achieving mass customisation at the cost of mass production, mastering change and uncertainty through routinely adaptable structures, and leveraging the impact of people across enterprises through information technology.Enhanced responsiveness is a major capability of an agile supply chain and is important as an addition to the high level of efficiency in cost, quality and smooth operations flow, which have been associated with lean supply chains.Four elements of agile supply chain practices have been identified (Figure 5).They are: customer sensitivity through continuous enrichment as against focusing on waste elimination; virtual integration, with emphasis on instantaneous response in addition to stable production flows; process integration through self-managing teams as against work standardisation and conformance; network integration through »fluid« clusters of associates who venture into temporal opportunities [18].
As the supply channel expands, the importance of managing the velocity of the goods and services that flow through it correspondingly grows in importance and the volume of goods flowing through it correspondingly expands.Several serious problems can arise in managing supply chain flows as they grow longer and longer.To begin with, as inventory expands, so do the costs of ordering, storing and moving it.As if supply chain investment and potential obsolescence were not enough, the longer the supply chain, the more it becomes subject to disruption stemming from the possibility of an expanding number of weak points as the fabric of the supply chain continuum is stretched too thin.Finally, as changes in demand or product/service variety accelerate, the longer the supply chain, the longer the time necessary to respond to those changes.If supply chains are to become more adaptable to manage such events, it stands to reason that one of the fundamental requirements is that they be able to increase the velocity of the end-to-end flow of their products and services.Mitigating the risk of supply chain disruption while simultaneously increasing product velocities requires the creation of supply chains that are agile and nimble enough to thrive in today's global marketplace.Such an objective requires that supply chains possess the following attributes: application of Process Kaizen Tools, process standardization, channel partnership, demand management, lean implementation, strong communication [7].
Collaboration in supply chains is important for innovation as partners realise the various benefits of innovation such as high quality, lower costs, more timely delivery, efficient operations and effective coordination of activities.Supply chain partners engage in interlinked processes that enable rich information sharing and building information technology infrastructures that allow the processing of information obtained from their partners to create new knowledge.Collaboration implies working more closely with a shared vision and trust.For firms seeking to innovate within their supply chain it is important that in entering into relationships, the firms that need to innovate ensure the relationship allows them to acquire addi- Source: Yusuf, Gunasekaran, Sivayaganathan [18] tional knowledge and build capabilities that add to their innovative capacity [5].

CONCLUSION
Growth is the key goal of each management including logistics management.It is not just an indicator of company performance, but also the basis for its future success.Innovation has elements that affect the growth and the costs.It can be used to differentiate a company from the competition and thereby give it a competitive lead.Only those companies that meet their customers' needs better, invest in innovation and service, improve their cost structure and so on, are firmly on the path to long-term solid growth.In other words, they can achieve growth that is sustainable and therefore profitable.In the traditional approaches companies try to incorporate growth within the limits of the existing company, but nowadays many companies have been taking a third party approach with the aim of achieving innovations, growth, cost saving and so on.
The evolution of outsourcing into value-creating smartsourcing provides a significant competitive advantage for those who employ it effectively and it should be the main approach of companies who are expecting more than saving costs when outsourcing.Outsourcing contracts usually have one thing in mind -to cut cost.Smartsourcing, on the other hand, advocates people using partners who can help company to focus on its core business, balance risk and opportunity, lower costs, increase innovation across all of its processes.Trust-based partnership and interaction between a company and logistics provider can lead to both incremental and radical innovations across the full spectrum of their business.
Smartsourcing does not make sense to everyone or for every function, and it is not necessarily an alternative to traditional outsourcing.In fact, a combination of the two suits most companies.