It is a cliché, but at the same time it is true: companies compete in increasingly competitive markets and in which it is more difficult to differentiate. Every day more products and services become ‘commodities’, that is, products that are perceived as generic and lack added value. Companies try to fight this phenomenon to stand out from the competition. To achieve this, one of the most used paths is the good use of outsourcing. How can logistics outsourcing help us?
Types of outsourcing
The main advantage sought by outsourcing is to refer some tasks to companies that have specialized in it. In this way we avoid dealing with processes in which we may not know how to achieve the best results and we deliver them to external agents who can improve our results and, in addition, perhaps at a better cost.
Although we are going to focus on logistics outsourcing, the decision to outsource can be made in virtually any part of the company. Usually we can divide the types of outsourcing into four, depending on the area affected:
Manufacturing: it is frequently used for manufacturing processes that are very established or close to ‘commodity’. The objective is that the company can focus on new designs or high-quality manufacturing, which are more difficult to outsource.
Information technology: the most popular of outsourcing. One of the main reasons is the lack of qualified personnel specifically assigned to it in companies. It is a highly specialized area and outsourcing is often the ‘easy’ solution.
Knowledge: These outsourcings are often those carried out by consultancies. In them, companies try to make knowledge available to them that they do not have within the company and that they want to obtain immediately.
Business processes: in this case, the most frequent thing is that outsourcing focuses on services. This is where we fit in logistics outsourcing.
How to know what to outsource
When talking about outsourcing, a recurring terminology is that of the ‘core’ activities, or main activities of the company. Core activities are those that determine the competitive success of the company. Those that make the company gain value against the competition. It can be said, and rightly so, that everything a company does must add value in one way or another. But when we talk about the ‘core’ activities, we are referring to those that most define a company, those that should place that company among the best in its category.
For example, logistics will always be very important in a company. But not so many companies use logistics as a key element of their value proposition. Which doesn’t mean they won’t want to have great logistics.
Essential and ‘non-core’ activities are usually placed on a second level. These are the activities that are required by customers or that serve as direct support to defend core activities. In last place are the non-main activities, which are the ones that we must analyze if it is convenient for us to outsource them.
Nicholas Anthony Hastings, author of books such as Physical Asset Management, proposes some guides to know which activities not to outsource:
-The main activities that bring the most benefits to the company.
-The activities in which the company is specialized and has great knowledge.
-Those that have a great impact on the consumer, so as not to lose control or the assessment or complaints issued by the client.
-Those for which the company has some technology that has been specifically designed for it, especially if it is a technology that is owned by the company.
Main activities that are outsourced in logistics
Once we have decided that we want to outsource our logistics, it is time to decide which parts of it we want to entrust to someone external. Capgemini’s 2016 “Third-Party Logistics” study asked what activities companies chose to outsource to their logistics providers.
More outsourced logistics services:
Domestic transport: 80%
International transport: 60%
Freight forwarding services: 48%
Customs broker services: 45%
Reverse logistics: 34%
Cross docking: 33%
Requirements for logistics outsourcing to be a success
Deciding what to outsource is certainly not the last step we have to take. On the contrary, it is now when the moment of truth begins, in which we will have to do everything necessary for logistics outsourcing to be successful.
These are some of the essential requirements for outsourcing to be successful according to firms like KPMG and Mayer Brown:
Support and commitment from management
The most careful outsourcing project is of little use if management does not believe in it. And this means allocating resources, understanding the reasons for launching the project and trusting it and its viability in the medium and long term.
Have the right people on the outsourcing team
When we talk about allocating resources, we are also referring to human resources. An outsourcing process does not imply that there are no staff in our company in charge of or related to the outsourced activities. The direction, review and supervision of what is outsourced are equally important.
What do we want to achieve with outsourcing? Such an obvious question that is sometimes forgotten. Do we want above all a reduction in costs? Put within our reach some technology that we do not have on our own? Can we offer a new service or product to our customers? We must know this response and share it with the parties involved (from our company and our collaborator).
clearly defined scope
How far does outsourcing go? What processes are we going to continue to maintain and which ones do we want to leave in the hands of the logistics operator? With this, in addition to avoiding duplication, you will ensure that there are no activities left without an owner and that later have to be rectified -and renegotiated- on the fly.
An established financial section
Few plans will be able to develop a company if it does not have a budget to fall back on. How much money are we going to allocate to the whole project? Here we also include the people from our company who will continue to liaise with the outsourced process. And, how can it be otherwise, the budget for outsourcing. Do we have to make additional investments? What return on investment or cost savings do we expect?
A precise contract on outsourcing
An accurate contract includes detailed information on many aspects: duration, start dates, requirements, tasks, evaluation methods, responsible and communication personnel, etc. If you review your company’s outsourcing, you may be surprised at the times when many of these elements do not appear in outsourcing contracts.
The performance indicators are going to be the ones that ultimately tell you if your outsourcing has been successful
Manage the transition phase as a project
The more complex what you need to outsource, the more capable you have to be of seeing it as a project. In the most complex cases, completing a logistics outsourcing process can take years. And even in the simplest cases it’s never going to be like turning a switch off and on.
Open an honest information process
The outsourcing of an important activity, even if it is not a ‘core’ activity, is a very important process in a company. And it is common for outsourcing to be accompanied by changes in the workforce. For all these reasons, it is very important to inform the staff in a timely, complete and honest manner. Hiding information or giving the impression of hiding it will only put sticks in the wheels of the process.
Agreement on performance indicators
When we talked about contract accuracy we mentioned evaluation methods. This means knowing what we want to measure, how we are going to measure it, and what are going to be the objectives that we are going to set for each indicator. These indicators, if they are well constructed, are going to be the ones that ultimately indicate the success or failure of our logistics outsourcing.
Next week we will delve into the reasons that lead companies to outsource and the fears and difficulties that hold them back.