A company with outsourcing as a core competency can effectively develop outsourcing relationships and manage its outsourced functions. If a shipper finds that its production facilities are down for long periods of time and logistics operations are not flexible enough to meet the requirements of after-hours deliveries and expedited service, there may be no choice but to pay the extra costs and outsource the logistics process on top of paying for large overhead for an inflexible logistics operation. She is thinking about outsourcing her warehouse needs to a third party warehouse service and I did not realize that this could be so beneficial for her, so I am glad that I found this article. There are pitfalls for the unwary, and shippers have been known to make mistakes and regret the decision to outsource. Outsourcing the management on the inbound supply chain, including supplier purchase orders, supplier performance and transportation takes a process and transfers it to an outside provider. By outsourcing lesser services, companies free up time and capital to move their business forward. It runs from suppliers right through to customers.
Financial opportunities assessment includes reviews of fixed to variable cost conversions, potential cost of technology upgrades, matching cost to volumes fluctuations and benefits to the balance sheet or corporate capital structure. More often than not, they have a back-office staff ready to work with invoicing variances, carrier vetting processes, etc. The difference lies in the physical realities of handling, storing, moving, and controlling physical products and their associated information over space and time. Is it easy to understand? Use the key performance indicators continuously. Recognize the outsourcing means that people and departments in the company are giving up ownership of the function or process.
Anticipate the various scenarios and the internal and external factors that can impact the program and results. Cost is always important, but ultimately the success of any global supply chain management process relates back to client satisfaction as a means of achieving customer focus and growth in market share. Flexibility is the key here. Well, I asked Mal Walker one of our Logistics Outsourcing experts, exactly that question! Outsourcing motivations will ultimately impact partner relationships and supply chain performance either positively or negatively. An outsourcing evaluation team should include members from the supply chain organization, finance or accounting, and sales.
Assuming you perform enough research and join forces with a professional organization, your business can prosper. Managing the entire set of operations on your own can prove to be too complicated and taxing, especially if you have other pressing matters on hand. The reason for outsourcing may also direct whether you are looking to outsource a function or a process. You make a great point that a third party company will have the most knowledge and experience with handle logistics, so my husband can count on them to do a great job. Lack of necessary skills may be a valid reason for outsourcing but companies should maintain enough knowledge of their logistics processes in order to effectively manage the outsourced relationship.
Cost analysis should include all of the operating costs associated with operations, including those costs that will be transferred to a service partner and those that will remain with the company. The biggest mistake of all is to consider logistics outsourcing as a strategy in itself. They may close themselves off to what the company's seeking the business are offering to do. In addition to the core competencies focus and the service providers know how are recognized as very similar motives for logistics outsourcing describes Farahani et al 2011. Then, you need to make a detailed outsourcing plan with the service provider of your choice and get started. Advancing technology will cause production to require more focus.
She is presently running her own educational consultancy, catering the needs of students belonging to both engineering and management discipline. When selecting a strategy of outsourcing, a company must objectively evaluate its operations relative to outsourcing options. Outsourcing a function versus a process can change the type of service provider that should be evaluated. The planned results should be tangible. The problem may seem to be too much inventory or out-of-stock situations. Regardless of the reason, outsourcing succeeds when it is well thought out and done properly.
Contractual agreements offer protection for both parties, and remove any nasty human interactions that can take place when in-house workers are dismissed. At the end of the day, businesses can be left with a hefty bill with little to show for their money. Cost of the inventory investment by location should be included in the analysis along with inventory related costs such as damages, lost, and obsolete inventory by location. In these situations, high freight cost is a derivative of another problem. Accountability and responsibility should be understood too, from and for both parties.
Desire to simply reduce headcount is another inappropriate outsourcing motivation as is the desire to simply reduce the asset base in order to achieve a short term improvement in the eyes of public investors. The Seller needs to know these to see the realities of accomplishing them, given the requirements and how and when it will be done. Some companies have a strong perception that only they know their business well enough to effectively serve their customers and no other company can do it as well because their operation is unique. The driver can be generating cost reductions and downsizing; this has been a traditional reason for outsourcing. There are also huge potential risks associated with each of the four major steps in outsourcing: Strategy, Selection, Implementation and Management.
You make a good point that an outside logistics company should have clear and open communications about things like troubleshooting. It will also show gaps or redundancies that may exist. Let us know in the comments below! The logistics performance gap analysis is used to compare logistics key performance indicators with world-class indicators. A single person should be deemed accountable for both parties. Once the gaps are identified, the team should use them to better know the strengths and understand the weaknesses of the organization.