Successful logistics outsourcing; outsourcing isn’t a cakewalk. Without careful planning and the right partner, the whole exercise can be self-defeating. But if you’re smart about it, you can get the return you’re looking for
The logistics landscape is littered with failed relationships between third-party logistics companies–so-called 3PLs–and companies like your own.
Companies frequently consider outsourcing logistics functions to reduce costs. But achieving those savings is often easier said than done. The notion of outsourcing logistics to reduce costs before first attempting to improve performance and cut costs internally is ill advised. It’s difficult, if not impossible, for a logistics partner to operate your business more efficiently than you, take its margin, and then return cost savings unless both parties work to identify and exploit untapped value. Therefore, success depends on your company having the will to change and improve its processes and your partners having a strong desire to execute their part with excellence
Once you’ve decided to outsource, identifying a short list of partners can be a daunting task. Thousands of options exist. Sorting them is essential. Here are a few steps that can facilitate the process:
1. Outline Areas of Opportunity
Gaining the ability to enter new markets without building a costly distribution infrastructure is one great reason to outsource. Establish a team to look at current and future requirements of your business, and assess your ability to meet those needs. This team should consist of key members of your logistics organization and such other areas as marketing and customer service. These other departments can provide insight into growth projections and shortcomings in existing processes.
2. Assess Your Strengths and Weaknesses
Understanding what you are good at–and more important, areas where your company needs help–will enable you to find an appropriate partner. Potential partners also have distinct strengths and weaknesses. For example, some logistics partners are better at warehousing than transportation. Others may be great at managing the import process but less skilled in such functional areas as order management.
3. Decide What Is on the Table
Once your team has identified partnering opportunities, determine which functions you are willing to cede to a partner. Such functions as warehousing and transportation affect how your customers view your ability to execute. The decision to outsource functions should be based on an understanding of your willingness to turn over mission-critical processes. The success of your outsourcing project depends, in part, on your comfort level with your partner’s ability to execute on your behalf.
4. Identify a Short List of Providers
Choosing your short list is next. Several strategies can help you select the right partner. Create and distribute a request for information that asks potential partners about their capabilities. Develop a list of providers that have experience in your industry. This process will reduce the number of potential partners quickly. Examine the network infrastructure of the remaining companies. It may also be helpful to initiate a logistics network optimization effort to identify optimal locations for distribution. Your geographic needs may require a nationwide network or be more focused on specific regions. Compare your requirements with the capabilities of potential providers and assess their technological capabilities. If a primary goal is to leverage your partners’ technology, part of your information request should focus on identifying prospective partners’ sophistication with regard to order, warehouse, and transportation management systems, as well as visibility, event management systems, and integration infrastructure.
5. Consider the Human Element
Successful outsourcing projects have one element in common: nurturing relationships between key people on both sides. Ensure not only a fit between corporate cultures but also chemistry between individuals. This is especially important during implementation and ongoing operations.
John Blanchard is Transportation Practice Leader of ESYNC, a consulting and systems integration company located in Toledo, Ohio. You can reach him at 847-717-5364 or firstname.lastname@example.org.
JOHN BLANCHARD Guest columnist 847/717-5364 email@example.com
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