Outsourcing Logistic Competences

The developments over the last two years has forced organizations to reevaluate there logistic strategy. Decreasing demand and prices under pressures urged the need to create more efficient and cost effective operations. The role of logistics service providers [LSP]continued to evolve as companies are going forward to use there services to optimize there supply chain.  These are not just the typical shipping companies who handle the physical flow of goods but value-add partners that can manage the entire fulfillment process (goods as well as provide critical data for visibility) at optimal levels and at cost-levels that make it a natural extension of the business.

Supply Chain Evaluation
Changing market conditions, including a reversal in the decline of stocks as a percentage of gross domestic product inside (U.S.), rising wages in low-wage countries and volatility in fuel prices, forcing shippers to one shift in the supply chain. The economic downturn has further increased the pressure on this. Sixty percent of shippers indicated that the current situation leads to the tipping point for the current supply chains and relationships with logistics service providers to review. Unfortunately, outsourcing of strategic non-core functions is often one of the most challenging types of outsourcing, frequently resulting in failure. As a result, many companies view this type of outsourcing as an organizational setback waiting to happen.

As with every aspect of outsourcing, such step should fit within your current and future business strategy. A thorough analysis and evaluation of your supply chain can help determine which parts of your supply chain are suitable for outsourcing. However, it’s clear based on the findings that outsourcing is no longer an “all-or-nothing” strategy, nor is it the answer to every supply chain issue. Today’s logistics executives are looking to balance the value of outsourcing strategic processes with growing core competencies within the organization.

Drivers
A successful outsourcing strategy takes into account the needs of of the business going forward in terms of geographic and customer channels. The LSP must be able to react quickly to the fast changes in your supply chain. Furthermore the outsource strategy should leverage core competencies in the supply chain and create a balance of in-house and outsourced activities, while continue to focus on visibility as a key performance measure for any LSP relationship.

Because of the flexibility and options available for outsourcing logistics processes, many of today’s Best-in-Class have taken a strategic approach to deal with the growing complexity of today’s global supply chains. Seventy-two percent (72%) of Best-in-Class companies indicated that “geographic reasons” were the main driver for outsourcing strategies with another 48% indicating that new channel / customer requirements were the drivers.

Challenges for success
When it comes to selecting the optimal services and processes to outsource, companies must first take the steps to map out their entire supply chain as it exists today and where it needs to be in the next three to five years. Such steps are required to deal with challenges such as upfront technology cost, data quality and integrity requirements, company broad support and building upfront a relationship with the third party.

The overall pressure facing today’s supply chain executives is in managing the costs and complexity associated with doing business. Without clarity and guidance into the best method for managing the flow of products in and out of their supply chain, the complexity and cost of doing business will continue to eat away at performance and ultimately profits.

One of the most important components of any supply chain strategy is a strong organizational structure that is focused on creating an environment that can support the business tactically, but also provide agility in order to maintain strategic guidance. Being able to create a mix of in-house core competencies as part of an overall supply chain strategy but have also been able to identify areas where outsourcing makes sense in order to drive performance.

IT Capability Gap
Studies show a large difference between the expectations of shippers in the field of IT and the satisfaction with the current options. Both shippers and logistics service providers indicate that they need better information with which information can be obtained and innovations, but that also does justice to existing investments.

Such gap can be a major setback in the success of outsourcing. One of the main factors to success in todays supply chain strategy is the ability to disclose information timely to all involved parts of the supply chain. Lack of real-time information can create cost overruns and inefficiencies in any supply chain. The maturity of companies is shown in there performance of the supply chain realizing high standards of performance on On Time and In Full deliveries, seamless cooperation with third parties regarding data exchange and real-time information and control on supplies in the pipeline.

When it comes to managing the supply chain, especially the logistics and distribution side of the chain, the Best-in-Class have followed the most recent trend in their adoption of commercial solutions to manage warehouse activities. Roughly 75% of Best-in-Class respondents indicated they currently have a commercial WMS solution. In addition, Best-in-Class were more likely to be utilizing a solution for multi-enterprise collaboration which aligns with the view from the Best-in-Class that outsourcing is an enterprise-wide and strategic business strategy.

Key steps

• Determine the role of supply chain management in the overall business strategy.
• Understand the value of technology to internal supply chain processes.
• Supply chain outsourcing, if done, must be a core competency.
• Re-evaluate logistic service provider relationships.
• Understand the value of visibility.
• Continuously monitor strategic business goals and reevaluate LSP strategies.
• Maintain a strategic balance.
• Expand the use of technology in collaborating with LSPs.
• Leverage LSPs as business growth strategies.

Sources:
Third Party Logistics Report 2009: The State of Logistics Outsourcing, Capgemini, Georgia Institute of Technology, Oracle & Panalpina, 2009.
Evaluating Logistics Outsourcing:Look Before You Leap! October 2009 Bob Heaney, Aberdeen Research Group
Outsourcing: Solution or Setback? By Jim Tompkins, President, Tompkins Associates

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