Executive Briefings

Transforming Logistics Outsourcing

Greg Aimi, research director with Gartner, joins us in a discussion of new ideas in logistics outsourcing, including the move from transaction-based to strategic relationships between providers and their customers.

Companies that outsource logistics aren't always "getting everything they should be getting out of the relationship," says Aimi. For a simple situation, including something as basic as moving boxes in the warehouse, the process of measuring results is fairly simple and the model employed is adequate. But for more complex supply chains, especially those involving multiple partners around the world, companies might be less aware of the outcome of their outsourcing efforts.

A lot of outsourcing was put into place to save on costs in a time of increasingly narrow operating margins. In the process, some businesses have "taken out people where [they] really need a higher competency," Aimi says. In particular, industries dealing with sensitive shipments such as pharmaceuticals and hazardous materials might require specialists who are "so core to [their] operation that it isn't something [they're] going to outsource."

Longer lead times are a frequent result of outsourcing strategies. For that reason alone, Aimi says, "you should think about these providers as more than providing a commodity [or] transactional services." Such partners might not be performing tasks that are of benefit to the companies that hired them.

A well-thought-out outsourcing strategy takes into account a variety of cultural issues, as well as careful scrutiny of the partner's technology and overall capabilities. Trust is also an essential element in an effective, long-term relationship. The logistics provider might end up getting involved in such crucial activities as network design and the identification of waste and inefficiencies. But the buyer of services has to ensure that the partner is capable of handling such complex tasks.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, global logistics, 3PL, third party logistics, logistics services, international trade, inventory management, inventory control, supply chain planning, supply chain systems, retail supply chain, sourcing solutions, supply chain risk management

Companies that outsource logistics aren't always "getting everything they should be getting out of the relationship," says Aimi. For a simple situation, including something as basic as moving boxes in the warehouse, the process of measuring results is fairly simple and the model employed is adequate. But for more complex supply chains, especially those involving multiple partners around the world, companies might be less aware of the outcome of their outsourcing efforts.

A lot of outsourcing was put into place to save on costs in a time of increasingly narrow operating margins. In the process, some businesses have "taken out people where [they] really need a higher competency," Aimi says. In particular, industries dealing with sensitive shipments such as pharmaceuticals and hazardous materials might require specialists who are "so core to [their] operation that it isn't something [they're] going to outsource."

Longer lead times are a frequent result of outsourcing strategies. For that reason alone, Aimi says, "you should think about these providers as more than providing a commodity [or] transactional services." Such partners might not be performing tasks that are of benefit to the companies that hired them.

A well-thought-out outsourcing strategy takes into account a variety of cultural issues, as well as careful scrutiny of the partner's technology and overall capabilities. Trust is also an essential element in an effective, long-term relationship. The logistics provider might end up getting involved in such crucial activities as network design and the identification of waste and inefficiencies. But the buyer of services has to ensure that the partner is capable of handling such complex tasks.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, global logistics, 3PL, third party logistics, logistics services, international trade, inventory management, inventory control, supply chain planning, supply chain systems, retail supply chain, sourcing solutions, supply chain risk management