Although companies have outsourced a number of supply chain activities for many years, I believe that we will soon see considerable growth in the outsourcing of additional supply chain management processes. This is likely to happen through Business Process Outsourcing (BPO), or the use of third parties to assume the management responsibilities for key business processes.

BPO has grown significantly in recent years, and industry analysts such as Gartner, IDC, AMR, and others are forecasting astronomical growth in this sector over the next five years.

When we think of outsourcing, we tend to think of the many specialized activities that have traditionally been performed by outside parties —activities such as payroll processing, freight-bill auditing, warehousing, customs clearance, and training delivery, to name a few.

But business process outsourcing is different. BPO involves contracting with outside parties to provide management of an entire business process, not just selected activities. Among the broad business processes that companies are beginning to outsource are human resources management, finance and accounting, and customer care, including operating call centers and managing other customer interactions.

We have observed two primary factors that are driving this development. First is the desire of many companies to focus on core business processes and leave non-core activities to specialist firms that can provide world-class performance in delivering these activities.

Second is the significant value proposition offered by BPO firms. This can include specialized expertise; economies of scale; leverage from investment in high-value processing technologies; the ability to reengineer business processes to incorporate best practices and meet world-class standards; and lower costs from operating selected activities at lower-cost locations.

We are now seeing companies beginning to outsource broader business processes in the context of supply chain management. It's not a major trend yet, but some areas where business process outsourcing is making inroads include the following:

Procurement— The most significant trend is probably in procurement, where a growing number of companies are actively exploring the outsourcing of activities such as sourcing, supplier management and integration, operations, and procurement-transaction processing and technology development. BPO's value proposition in procurement can be significant for both direct and indirect goods.

Service Parts— Many companies are considering outsourcing the management of service-parts activities, including inventory deployment, logistics, and customer service. BPO providers with specialized skills and technologies can offer an attractive value proposition in this space.

Managed Logistics Services— While still rare, we are seeing growing interest in outsourcing the full range of logistics activities to a BPO provider. This involves not just warehousing and transportation, but also higher-level, more complex activities such as network design, materials management and procurement, integrated supply-and-demand planning, and information technology applications.

Although business process outsourcing might not be right for all companies, it is clear that the use of BPO will grow, and that more supply chain management processes will be considered for outsourcing. Your company might benefit from a look at BPO.