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Before mapping an organizational design, it s important to lay out both current and desired core competencies. These will serve as a foundation for structuring the organization. Core competencies are defined in many ways, but internal capabilities can be considered core when they confer a competitive advantage or are otherwise essential for achieving your company s strategic objectives. Relating your company s core competencies to your supply chain strategy likely will be an iterative activity. Don t try to force-fit existing capabilities onto the needs dictated by your strategy it won t work. Nor should you let your organization s capabilities limit your company s strategic objectives. Is a core competency something you should be good at Yes. Is a core competency something you are good at Maybe. How do you know First, take stock of what you have. In many cases metrics will tell you which activities your company excels at, but don t assume that those activities are core competencies or that subpar performance areas are not core. As we saw in 1, the first step toward making an outsourcing decision is deciding what you re really good at and which areas are or have the potential to become strategic differentiators. These are the activities to keep in-house. Other activities may be better performed by thirdparty providers and their ever-expanding menu of services. For instance, Flextronics describes how it has upgraded its role as vendor to that of virtual manufacturer to technology companies by offering design, engineering, manufacturing, and logistics solutions.7 This approach reassures OEM customers that by choosing Flextronics as a partner, they will be free
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to focus on their other core competencies such as research and development, sales, marketing, and branding. By jettisoning noncore activities, companies are promised many benefits: greater focus on remaining activities, economies of scale, buying power, sophisticated planning tools and systems, and access to state-ofthe-art production equipment all without making large capital investments. But what if what s left after outsourcing is insufficient to drive effective performance We refer to this as thinning the core. In some cases a company becomes increasingly reliant on supply chain partners, and the remaining core begins to shrink in unintended ways. The people left within the company may have little personal experience with core operations processes, such as materials planning, supplier development and management, and demand management. This can result in a vicious cycle: The company continues to lose internal operations talent and becomes less effective. Companies simply may forget how to perform activities once considered essential for day-to-day operations. Mike McNamara, chief operating officer at Flextronics, sees many companies who have allowed their core to become too thin. It s important for us to have people within our customers companies with whom we can talk supply chain, he says. We see a lot of companies who are no longer capable of performing some very critical activities. 8 This is an issue for Flextronics when they work with customers to develop the parameters that will govern the relationship between the two companies and when they are attempting to execute on a day-to-day basis. If there is no one within the customer s organization who can develop a long-term demand plan, says McNamara, it s very hard for us to get set up in the way that will serve them most efficiently. Companies can easily underestimate the complexity and competence built into their operational processes or misread the ease with which these capabilities can be transferred to supply chain partners. Maintaining strong links between newly outsourced operations and those kept in-house also can be a challenge. Very often the decision to outsource one or more of your core supply chain processes will require that you develop a new core competency the ability to manage partners effectively. How do you know what your core competencies are or should be Remember that all essential supply chain processes must exist somewhere within your supply chain whether inside your company or beyond your borders in the extended supply chain (the chain of chains). Review your company s basis of competition and understand the process elements that must be in place to support it. Ask yourself, Is this activ-
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