When do you outsource?

When it's not a core competency and it's better to invest your resources elsewhere.

David Hannon -- Purchasing, 2/3/2005

When its Tier One suppliers in North America began buying more components and supplies from overseas, International Truck and Engine of Warrenville, Ill., knew that on top of the work it was doing to import product from its production facility in Monterey, Mexico, that it needed to "strongly increase the amount of global sourcing," says Ben Bauman, global logistics and corporate trade compliance manager.

"The existing organizations and procedures were fine when we were a North American company with 99% North American materials," says Bauman. "But we were seeing more stress on the existing structures as our supply chain got more complex."

To help drive the global sourcing push, International Truck created a separate operating group within its purchasing organization and tasked them with researching and identifying potential overseas suppliers, managing the ensuing transition process, and integrating those new global suppliers into International's supply chain.

But just as the company was looking to source more globally, import regulations were getting more complicated by the changing rules and regulations from U.S. Customs as a result of Sept. 11. And it became pretty obvious that unless International could hire and train about a dozen additional people to manage the importing process, it was not going to be able to achieve its goals for global sourcing.

The answer: Outsourcing. International decided that rather than take the time and investment to grow its internal organization to handle the increased importing work, it would hire a third-party service provider to handle that work.

"In the pre-Sept. 11 world, before there was such globalization and NAFTA was as prominent as it is now, we could manage this function with three or four employees without an import/export-specific background," Bauman says. "It was primarily domestic troubleshooting. Where was the material? What didn't get across the border?"

So three years ago International, in order to retain the flexibility to expand its own organization as work dictated, signed on with third-party service provider Vastera of Dulles, Va.

Vastera's documenting procedures for International's brokers and import compliance were an immediate asset that also put International on the fast track to C-TPAT certification.

"We're now pursuing the Importer Self-Assessment approval which lets importers do internal audits and exempts us from a Customs audit," Bauman says. "Having Vastera handle our compliance made the application for these programs much easier, because they had experience with them already."

Vastera also uses some proprietary software and technology behind the scenes. Bauman says the key is that Vastera provides International with the information it needs and can use, but not endless reams of data it will not use.

"We have over 300,000 parts in our trade database," says Bauman. "Vastera reviewed all of our existing classifications for accuracies on both import and export schedules and we give them up to 5,000 new parts each month their team classifies."

In addition, he says, Vastera's NAFTA teams go out and get International's parts NAFTA certification. "They monitor the borders and if one of our brokers crosses the border with a part not on the database, that gets kicked back to the Vastera classification team and every import transaction at the part level is monitored for compliance. That all happens behind the scenes. I only see how many new parts were classified and solicited and what the yield is on those."

Bauman says that companies doing more global sourcing should not be overwhelmed by the additional demands that presents. "There is a lot of complexity in going global, but you have to decide what your core competency is and what is best kept in-house and then decide what would be difficult to train an outsider on."