Volume 8, Issue 5 - May 2007
Important Steps to Consider
So you’re thinking about outsourcing the delivery of your product.
First, it’s important to remember that outsourcing itself is not the strategy but rather the vehicle for achieving this objective.
The major failures in outsourcing relationships occur when a firm outsources an activity its personnel doesn’t understand, and the provider promises to meet the requirements that have not been fully defined, understood and communicated.
Some third-party logistic providers specialize in certain industries such as doors and windows. The advantages to dealing with, for example, a transportation specialist are obvious: the knowledge and expertise they have in specific industries lend itself the economies, efficiencies and innovation to your operations. In some cases synergies and cost reducing services such as consolidation can be achieved only through using a specialist.
As with any other significant undertaking, it is absolutely critical that the outsourcing project has senior management support. Before all or part of the logistics function is being turned over to a third party for consideration, one of the first tasks that management should perform is to determine what your company is attempting to accomplish through outsourcing. Objectives must be set, and many questions must be answered. It’s suggested that you should go beyond “What will it cost”? On the other hand as important as costs are, there are other determining factors that should be considered. Such as:
For some companies, assessing current operations and detailed costs may be the most difficult part of the outsourcing process. However, in order to make an intelligent decision it will be necessary to conduct an audit to access current operations.
While logistics outsourcing can provide substantial benefits in costs, expertise, systems and other areas, it is critical to follow best practices approaches to identifying, selecting and managing third-party relationships. Lack of adequate internal preparation is common and can be potentially fatal. Without a solid understanding of your current situation and specific objectives, it is impossible for the logistics provider to propose solutions, and for you to assess whether they truly provide value for your company.
Know your Current Costs and Performance Levels
Your carrier will want this information so they can evaluate what benefits they expect to provide and what goals they’re expected to hit as well as whether or to what extent they will share in gains or losses as part of a performance-based contract with you.
Build the Right Project Team
Management must have a clear picture of current logistics operations, their capabilities, limitations and costs, as well as future needs. It is important to remember that all costs must be captured: fixed and variable and direct and indirect. It is quite possible that some expenditures, such as those for order processing or management’s time, may be difficult to quantify, but they cannot be ignored if valid comparisons are made.
The activities described above are simply the first steps in outsourcing logistics. But they present the critical foundation that will allow you to proceed effectively and efficiently.
Rich Augustine is the president of Dedicated Distribution Systems based in Indiana, Pa.