Companies usually decide to outsource some or all of their logistics functions to cut costs, use working capital more effectively, or both. Most companies also claim that outsourcing is an efficient and effective way to perform functions that aren't central to their business, thus allowing them to concentrate on things that set them apart in the market and add to the bottom line. In some cases, companies claim they can respond faster and better to change when using a logistics service provider (LSP). Indeed, there are significant benefits to outsourcing logistics.
Other factors accelerating growth in logistics outsourcing include a decade of staff downsizing, the globalization of supply chains, increasingly complex demand-driven value chains, and the rising popularity of outsourcing back-office functions to low-cost offshore firms.
To maximize outsourcing benefits, companies must follow a set of logical steps in an overarching process to ensure the right decisions are made about what to outsource and with whom to partner.
The high-level steps are as follows:
Â· Evaluate whether outsourcing is right for the company.
Â· Determine exactly what functions to outsource and the performance expectations.
Â· Use a well-defined professional selection process to evaluate and select which provider(s) are right for the job.
Â· Create an agreement that will yield the best results over time.
While some of these steps may seem obvious, they are no less vital and there are best practices to follow at each step. The following analyzes these best practices in each area and in the overall logistics outsourcing decision process.
When is outsourcing the right thing to do?
Probably the most prominent of all internal reasons for outsourcing is that companies find it financially desirable to redeploy capital assets and shift fixed and internal logistics costs to an expense. Physical assets and people are replaced by the provider and that capital can be used for other purposes, usually those considered more strategic to the growth of the company.
Supply chains may also require particular process competencies or specialized supply chain expertise that is not available internally. This might include the need to support a shift to a demand-driven supply strategy, increasingly complex global logistics requirements, sophisticated network and inventory optimization strategies, or all of the above. Some believe that the outside firm is simply better than internal management at lowering costs, increasing staff productivity, and managing labor.
In some cases, the company's technology resources just can't support the automation and optimization necessary in today's complex supply chains. When a provider has invested in these technologies and is proficient in their application, the customer gets leading capabilities faster and at lower cost.
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