'Outsourcing is by definition cheaper' and 'Insourcing ensures better processes': these and other propositions were at the heart of the debate on insourcing vs outsourcing.Hans Groen, senior logistics professional, and Robert van der Waal, director logistics operations (Samsung) discussed with journalist Marcel te Lindert whether shippers are better off keeping their logistics processes in-house or leaving them to logistics service providers.
Groen is one of LogistiekProfs' knowledge pros and recently wrote a blog on outsourcing as a supply chain strategy. Van der Waal made a name for himself at Samsung with his contrarian solution of opting for insourcing in logistics. Several years ago, the company chose to only partially outsource its logistics.
Thesis 1 - Insourcing is a step back in time
Van der Waal: "I agree that we are shifting towards a world where you have to do more and more together. We are moving towards a situation where people share loads and flows. But that doesn't mean insourcing is a step back in time. If you have the volumes to keep your processes in-house, then insourcing is the way to go.
Hans Groen actually sees a shift towards insourcing in some cases. "At companies in the United States, I noticed that a few years ago a lot of outsourcing was done to Asia. That was purely cost-driven. They then compromised on quality. Now companies are coming back to that in droves. They are shortening the supply chain and bringing everything back home."
Statement 2 - Outsourcing is always cheaper
Van der Waal: "This is an urban myth. You can actually calculate it on a beer mat. There is a 10 per cent margin on what you pay to a logistics service provider. You can cut all these costs if you bring your processes in-house. Of course, it is important that you have your processes under control and know what you are doing.
Green: "This proposition also typifies the classic mindset of the past: everything has to be cheaper. Too much attention was paid to the short-term cost picture, so outsourcing was quickly chosen. People are now coming back to this. The quality and service to customers is now becoming more important than just the cost tag, so insourcing may also gain ground again."
According to Van der Waal, outsourcing can be cheaper in some cases. "It is important for companies to look carefully at their competences. Are they small or medium-sized? Then outsourcing can be a good consideration. Large organisations could often cope perfectly well on their own in terms of volumes."
Also among the audience was a logistician from Brunotti, a company that recently chose to insource its logistics. "Previously, we worked with an LDV, and in times of growth, the logistics provider was only too happy to grow with us. But as soon as things calmed down again, we were strictly held to the contract. That's why we decided to do it ourselves again and thus maintain flexibility. We are still waiting for the moment when we can no longer handle it ourselves, but so far it's going well."
Thesis 3 - Insourcing ensures better processes by definition
If only because of greater involvement
According to Groen, it is certainly not always the case that logistics service providers are more careless with processes. "In some cases, shippers and logistics service providers work together from the beginning. They build it out together. These LDVs are very involved with the companies. They, too, want to prevent damage and ensure that processes are optimised. The tricky thing is that a certain dependence arises in this way, especially from the logistics service provider who grows with the company. Service providers and shippers still sometimes want to slide into each other quite a bit."
Van der Waal does agree with this proposition. "Surely gambling with your own money is different from gambling with other people's money. If people feel the pain at the loss of damages, then they deal with it differently." Van der Waal notes that at Samsung, damages decreased significantly after only a few months.
Thesis 4: Outsourcing is an efficient tool to strengthen weak processes in business operations.
"Ïk do not think it is a solution to throw your processes over the fence if they are not in order. Then you are the weakest link," Green said. "Only when you have your processes in order can you decide what you want to outsource or not." Van der Waal agrees, "People often think they are going to save costs or significantly improve their processes. The important thing is to master your own processes first. With outsourcing, you can then take an extra step towards continuous improvement.
Van der Waal notes that logistics service providers still sometimes struggle with this. After all, shippers expect that they can throw everything over the fence if the processes are not running well. "Those logistics service providers are obviously not going to refuse this customer. But that does mean they will be busy clearing debris for at least six months."
One topic discussed during this thesis is the long contract offered by logistics service providers. Robert van der Waal thinks it would be beneficial if ldv providers offered a one-year contract, instead of the standard 3 or 5-year contract. Then outsourcing would be a lot more attractive. A logistics service provider in the room reveals that this is impossible: "The payback period for implementation is at least three years. A one-year contract is not profitable." Hans Groen thinks that can be solved by a more standard package from logistics service providers. "That what the ldv'er offers one shipper can also be offered at another shipper. The payback is then spread over several shippers," Hans Groen says.
"We have never experienced that a customer wants exactly the same thing," was the response from the room. "If you offer a certain type of pallet, they want something else again. It seems impossible to me that a standard package pleases multiple shippers."
Thesis 5: Once outsourcing is chosen, there is no going back
"That is indeed the tricky thing," agrees Van der Waal. "Once you have outsourced, you have lost the knowledge. We spent a lot of time getting that knowledge back. That's why the insourcing was done step by step. It was only after a few years that we were ready for it again."
An LDV employee in the audience also noticed that shippers are reluctant to go back to insourcing. "The parties that leave us are generally parties that go back to another service provider. These are not parties that are going to insource again."
The debate concluded with a common tip: Whether you choose insourcing or outsourcing, check regularly whether the choice is still right.
Editorial LogistiekProfs
