Outsourcing transport and warehousing has now become commonplace in logistics. Nevertheless, some companies are opting for the opposite path and deciding to do logistics themselves again. So time for a good debate during Logistica on insourcing or outsourcing of logistics. One of the themes during that debate is outsourcing as a tool for chain optimisation. Most companies are too internally focused in outsourcing processes.
Just over half of all money (51 per cent) spent by businesses on transport goes to logistics service providers. When it comes to warehousing, 36 per cent of the budget available for it is spent on logistics service providers. These figures from the '2015 Third Party Logistics Study' show once again that outsourcing of logistics has become commonplace.
The main reason for outsourcing transport and/or warehousing is undoubtedly cost. Logistics service providers have made it their core competence, have efficient networks, processes, systems and resources and are therefore often cheaper. In any case, outsourcing allows shippers to reduce their fixed costs and clean up their balance sheets. And sometimes outsourcing makes sense because service providers can do it faster or better.
Mainly internally focused
Most companies make a careful consideration before deciding to outsource their transport and/or warehousing. Rightly so, because once the decision has been made, the reverse route - i.e. insourcing - is a lot more difficult. Just try explaining to a CFO that you want to stop working with the logistics service provider and reinvest in warehouses, racking, trucks, forklifts and employees yourself. You'll be lucky to get any support for that.
Unfortunately, when it comes to outsourcing processes, most companies are only internally focused. They mainly look at their own processes and costs. How are we doing now, what are our own achievements, how many costs do we have to incur and how will all that change when we hire a service provider later on? As a result, they are missing great opportunities to use innovative concepts to structurally improve their supply chain and serve their customers better.
Bundling flows
In the food sector, for example, initiatives have emerged in recent years to bundle the goods flows of food producers towards supermarket chains. Now, all those producers often still make their own agreements with supermarket chains on the delivery of products without coordinating these with the logistics service provider. The result is that this service provider, on behalf of different producers, is often at the DCs of supermarket chains several times a week or a day with half-full trucks.
When these manufacturers using the same logistics provider cooperate more among themselves, everyone in the chain benefits. For example, they can coordinate their delivery times to supermarket chains' DCs and jointly ask the supermarket chains to order full trucks with their products in future. Outsouring then becomes a tool to optimise the entire chain, precisely by taking full advantage of the synergy with the service provider's other clients.
Logistics providers benefit because they can increase their load factor and use their trucks more efficiently. Supermarket chains benefit because the number of trucks at the docks decreases while the delivery frequency per product goes up. As a result, availability increases while safety stocks can be reduced. Manufacturers benefit because they serve their customers better and incur lower costs.
Debate during Logistica
Outsourcing as a tool for chain optimisation is one of the topics at the debate on outsourcing versus insourcing of logistics during Logistica. Participants in this debate are Hans Groen, supply chain & performance management consultant, and Robert van der Waal, director logistics operations at Samsung Electronics. Groen is one of LogistiekProfs' knowledge pros and recently wrote a well-read blog on outsourcing as supply chain strategy. Van der Waal made a name for himself with his contrarian solution to opt for insourcing in logistics.
Both participants will give their views on insourcing versus outsourcing and discuss this with each other and with the audience. The debate will take place on Friday 13 November at 14:15. The venue will be the LogistiekProfs Theatre during Logistica.
You can register for this debate here.
Marcel te Lindert - Journalist Logistics and Supply Chain
