There are almost as many reasons for outsourcing supply chain operations as there are companies that do it, but most of those companies have the same basic motives.

One is to improve their return on assets. Because companies that outsource are able to reduce their investments in expensive technology, warehouses and equipment, they can significantly enhance their returns.

Another is to reduce operating costs. Surveys that ask companies why they outsource, in fact, almost always find cost and pricing to be among the top three determinants. Respondents to a 2001 survey by J.P. Morgan Securities, for example, said that price was among the leading factors in their choice of a logistics service provider. Cap Gemini Ernst & Young's 2001 Third Party Logistics Study, meanwhile, reported that 63 percent of companies that did not outsource refrained from doing so because they believed outsourcing would not reduce their costs.

And they may be right. If a company has an efficient, well-managed distribution system, outsourcing that system may not reduce operating costs.

But there's another important consideration they could be overlooking: that outsourcing can add value to their systems. Operating costs in absolute dollars spent may be higher compared to the cost of in-house operations, but the value received from outsourcing may more than offset that premium. In other words, a Mercedes costs more than a Ford, but that doesn't necessarily make it a bad investment.

There are many ways outsourcing can add value to an efficient, cost-effective logistics network. The automotive industry, for example, often relies on outside providers to perform functions associated with just in time (JIT) operations. One automaker uses a third-party logistics provider to collect parts from suppliers and deliver them to a cross-dock. There, shipments are consolidated and shipped to 12 different assembly plants throughout North America. The parts are never warehoused or inventoried at the plants.

In the grocery industry, collaborative planning, forecasting and replenishment (CPFR) links customer demand with replenishment scheduling to reduce inventory in the system. This results in smaller, more frequent shipments. Contract logistics companies are able to combine these smaller shipments into truckloads, reducing freight and handling costs and enhancing the entire distribution process.

Perhaps the most important value-added offering that third parties have provided in recent years is information technology management. For many companies, increasing demands for new information systems, resources and real-time visibility into production and order status often can be met most efficiently through outsourcing.

Today there are contract logistics companies that assist clients in identifying logistics problems while providing integrated, end-to-end supply chain technology solutions. A major benefit to the client is that it can obtain technological capabilities that it would not be able to acquire on its own.

Outsourcing adds some value through cost reductions, of course, but knowledgeable logistics managers will look beyond that to the total gains in customer service, information technology and state-of-the-art supply chain management techniques that logistics outsourcing can help them achieve.