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Myth-Busting Logistics Outsourcing

Myth-Busting Logistics Outsourcing

Logistics Outsourcing

Outsourcing is a big decision, but myths about outsourcing can cloud your decision-making. In fact, if you are in a room where people are discussing logistics outsourcing, you might hear these common misconceptions.

  1. We can hand over the problems and issues associated with logistics operations by outsourcing.
    Don’t expect to outsource, wash your hands of logistics, and ride off into the sunset. You and your staff know your business, your customers, and what you want to achieve. The provider needs that input to solve logistics challenges that confront your company. Communication and collaboration with your outsourced logistics provider helps them understand your business and logistics goals. It also builds a high level of trust and ensures that the outsource solution aligns with your supply chain strategy. Without this, you’re more likely to experience frustration, blame, and poor logistics performance.
  2. Our costs will increase if we outsource logistics.
    That’s not what happened for companies surveyed for the “2014 Third Party Logistics Study: The State of Logistics Outsourcing.” Those companies reported that outsourcing reduced logistics costs by an average of 11%, inventory costs by 6%, and logistics fixed assets by 23%.[1] While your savings may vary, you can determine what it costs you now to staff and maintain your supply chain operation, and weigh those costs against the potential benefits of outsourcing.
  3. Overall service levels will fall and customer complaints will increase if we outsource.
    Preventing complaints and maintaining a high level of customer service should be everyone’s top priority—including your outsource provider’s, since they are an extension of your team. Organizations that collaborate with their outsourcing provider often benefit from the wealth of best practices that the provider brings from other outsourcing engagements. Many companies see improvements in customer service after they outsource. In fact, you are more likely to experience falling service levels and complaints if you leave the provider on their own.
  4. We will lose the connection between our brand and the customer’s experience by outsourcing.
    Imagine that your company sees final mile delivery as a core competency. By the time you outsource, your provider should believe as strongly as you do that there is a direct connection between final mile delivery, the customer’s experience, and, ultimately, the reputation of your brand. An outsource provider that does the job right will always seek to elevate customer experiences, not erode them.
  5. We will lose control of the strategy.
    With a well-structured outsourcing arrangement, you can actually increase control. You can require the provider to bring in strong talent to focus on tactical operations while your staff concentrates on strategic issues. Have them participate in daily, weekly, and monthly reviews. Require that they own, implement, and maintain best in class TMS technology that you can use for your operations. Even have them gather reports and provide analysis for metrics you and your company care about.

Find out the issues you really have to understand before choosing to outsource your logistics by reading a new white paper, Is Logistics Outsourcing Right for Your Company?

 

[1] Langley, C. John Jr., Ph.D., and Capgemini. “2014 Third-Party Logistics Study: The State of Logistics Outsourcing.”

Comments

Andy

Interesting as I was thinking about this earlier.
Your comment 1 is related to 3, 4 and 5. Frequently I find that government organizations will abdicate their responsibility once the contract is signed. Then no one is in control and customers will intervene and the process collapses leading to cost over runs and mission failure. The key is that the outsourced organization is your partner in the accomplishment of the mission, but you retain “senior” partner status and stay engaged and as you mentioned conduct daily, weekly and monthly reviews.
Another critical failure I have seen is that the government people that are assign to work with the outsourced company are frequently inexperienced and insufficient in number to effectively provide oversight.

12.2.14

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anjan chatterjee

People also miss out that with Outsourcing actually nothing changes & affected. Insurance of Good, Title of Goods, Responsibility of Fulfilling the Order, all of it remains with the Company. Outsourcing agency is a Service provider. Similar to the Outwards Freight Forwarder, & Shipping agents.

12.5.14

Reply

Reuben

1. true, you now have to track the orders of your customers and the 3PL. Not worth it.
2. Our costs went down but the cost to the customer went up 30%
3. The contract is key when it comes to levels of service. Write them well you'll be happy. Finding out you missed something can equal poor service.
4. We owned the final mile however getting it there was a problem as the 3PL didn't always have the experience in providing the wide range of products and in following up on aged orders.
5. Control of strategy must be worked into the contract. This is all fore thinking and if you are new to the game you will get burned. Reviews are so much fun too...the more the merrier! No way sitting the PM and going over where they need to improve is bamboo shoots under the fingernails. No one likes it.

So bottom line we did not renew the contract. We have one mark up on products instead of two and the customer tracks and pays for their own orders separate from us.

4.21.15

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