Running your own logistics facility can be a poor use of resources and an unwelcome distraction. It may be an unnecessary complication when you should be focusing on servicing your customers. Improving the efficiency and agility of your logistics operations leads to lower costs and reduced exposure to risk.
Logistics is a broad term covering all warehouse and distribution functions, from inventory control to transportation and shipping. Outsourcing all or some of these functions can be achieved successfully, provided the right approach is followed.
Operational costs are rising every day, and containing them is an ongoing challenge. Third-party outsourcing companies have economies of scale and technologies that provide process efficiency, better pricing, and superior customer support.
Outsourcing can deliver greater flexibility as the outsource partner can respond to capacity issues, external market changes, and unplanned events more quickly. A bonus: it may lead to expansion into new markets and geographical areas that you could not access until now. A recent Gartner survey found that responders listed their 3 top logistics priorities as improving or updating technology (37 per cent), cost reduction/cost optimisation (31 per cent) and increasing customer satisfaction (29 per cent). Each of these ambitions can be achieved through outsourcing elements of logistics operations.
The main benefits of outsourcing are :
Whatever the functions are outsourced, choosing the right partner is vital. The selection process can be tricky and includes assessing many factors. The most common types of outsourcing partners are third-party logistics companies (3PLs) that provide various warehouse and distribution services, including freight forwarding and shipping.
For example, a transport 3PL uses a dedicated fleet to handle specialist consignments such as hazardous or perishable goods. They can also handle full or part loads and returns by combining volumes across multiple users.
A dedicated fourth-party logistics (4PL) partner can integrate operations and provide all your supply chain management and logistics services for an all-inclusive service. A 4PL will aggregate the services of multiple 3PLs and give the IT ‘glue’ that makes it a seamless operation.
There are many factors that business leaders should consider when entrusting some or all of their logistics operations to a new partner.
Here is our checklist that can help you achieve a successful outsourcing outcome.
What exactly are you trying to achieve? Understand the expectations from key people in each affected functional area within your company.
Is it to improve efficiencies, save costs, or reduce headcount? Setting clear and measurable financial goals and operational objectives is important to help ensure that you find the right logistics provider for your needs. Do you have the capacity to manage the outsourcing partner?
There are many new players in logistics outsourcing at every level.
To establish who can work with you to meet your goals, extensive research is required. Researching the market takes time, and help is often needed to evaluate vendors and establish who or what is the best solution. Which service providers handle similar businesses? There are specialists in every industry sector. Do you know who they are?
Analyse the services they provide, take references from similar customers, and find a fit. How responsive are they to urgent issues and conflict resolution? How important will you be as a client to our chosen partner? Consider their approach to sustainability issues such as emissions, energy use, waste, etc.
The pricing models that are offered can be complex. Establish which offer provides the best value for the exact services you need. Ask detailed questions about each function to be outsourced and take professional advice to understand their fee structure.
Are they offering an open-book relationship or a fixed-price contract on a cost-plus basis with escalations? Open-book contracts allow you to see into their business and understand their pricing and margins. Negotiate a service level agreement (SLA) defining how the relationship will work.
Cloud-based software solutions have become the norm for financial and operational transactions in supply chain management. Can the service provider integrate its solutions easily with your existing systems and processes? This is often the area where there is the potential for problems and delays in implementation. Does their technology provide real-time dashboards and the reporting capabilities you need to monitor performance?
Is the outsourcing partner meeting your expectations? Key performance indicators (KPIs) are essential to measure performance. We suggest 3 -5 KPIs that are tracked at agreed intervals. Examples are:
Focus on opportunities for continuous improvement and innovation.
Most business communications, either transactions or person-to-person activity, are now conducted electronically. Do they have a secure system of communication, e.g., an online portal? Your chosen provider may have ways of working that do not easily fit your behavioural style or culture, and both parties have to adapt.
Make sure you evaluate the potential operational, financial/legal, and brand reputation/service risk and who carries that risk. The cost of assuming or passing on risk makes a difference to the costs and the working relationship you will have with your partner.
Engaging and contracting with an outsourced 3PL or 4PL is not the same as buying widgets; you are sourcing what could be an expensive and complex solution and are putting in the foundations of a potentially long-term professional partnership. Success and failure may be the gap between expectations and outcomes. Treat your outsourcing service provider as a business partner for the best results.
Deciding to outsource your logistics requires expertise. Our logistics consultants can work with you to establish goals, navigate the market, and select the right provider. When we know what you are looking for, we can help you to find the right solution and implement it.
Speak to our logistics outsourcing consultants about navigating the steps to success.