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7 ways to achieve success with Logistics Outsourcing

7 Ways to Achieve Success with Logistics Outsourcing

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 through to transportation and shipping. Outsourcing all, or some, of the functions can be achieved successfully provided the right approach is followed.  

Why Outsource your Logistics?

Logistics Network Strategy

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 were not able to 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 :

  • Lower cost as less investment needed e.g. vehicles, space, and staff
  • Access to the latest technology solutions
  • Availability of industry expertise and best practices
  • Ability to deal with uneven demand and seasonal peaks
  • Reduction of risk

Choosing the best logistics partner for you

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 is set up to handle specialist consignments such as hazardous or perishable goods using a dedicated fleet. 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 provides the IT ‘glue’ that makes it a seamless operation.

Here are 7 ways to achieve success when outsourcing logistics

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. 

logistics outsourcing

1. 

Define your objectives

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? It is important to set clear and measurable financial goals and operational objectives to help ensure that you find the right logistics provider for your needs. Do you have the capacity to manage the outsourcing partner?

2. 

Identify potential providers 

There are many new players in logistics outsourcing at every level. 

Extensive research is required to establish who can work with you to meet your goals. Researching the market takes time and often help is needed to evaluate vendors and to 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 resolving conflicts? 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.

3.

Evaluate pricing

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 related to 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) that defines how the relationship will work in practice. 

4.

Ensure technical expertise and compatibility

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 you with real-time dashboards and the reporting capabilities you need to monitor performance? 

5.

Monitor performance

Is the outsource partner meeting your expectations? Key performance indicators (KPIs) are important to measure performance. We suggest 3 -5 KPIs that are tracked at agreed intervals.  Examples are:

  • On-time delivery % –  e., % of late deliveries experienced/ how late? 
  • Number of loss or damage claims per x shipments
  • Admin accuracy –  % of error-free documentation  

Focus on opportunities for continuous improvement and innovation.  

6.

Communication channels

Most business communications, either transactions or person-to-person activity are now conducted electronically. Do they have a secure system of communication, i.e. an on-line 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.     

7.

Risk management

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 outsource 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. The difference between 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 advisors can work with you to establish goals, navigate the market, and select the right provider for you. 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 on how to navigate the steps to success.


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