OUTSOURCING LOGISTICS FOR THE FIRST TIME, WHAT IS AT STAKE ?
If you manage your logistics internally you no doubt understand that it is getting more and more complex. Whether you are operating in the Consumer Goods, Retail or Ecommerce industries, the number of channels you need to serve to reach your target audience is increasing and so are the demands of your end customers. As a result, logistics is taking up more of your attention than it should and has also started to divert resources from your core activity.
When that happens, you need to find a way to remain flexible and reactive. That’s not an easy one, especially when you are not a specialised logistics provider. Trying to retain the right people to ensure a high-level of in-house logistics expertise and keeping up with the pace of innovation are two of the most commonplace challenges in this regard.
You may have already come to the conclusion that you need to outsource part or all of your logistics operations. Ninety percent of Fortune 500 companies in the United States alone are working with third-party logistics providers, according to a report from Armstrong & Associates. Discover all the advantages of outsourcing your logistics by reading our article “What are the key advantages in outsourcing your company’s logistics operations” ?
The next question is who you should outsource to. You need to take a long and good look at possible candidates. Choose the wrong one and things may end up negatively impacting cost and/or performance. You may even regret your decision to outsource in the first place.
BALANCING COST AND QUALITY – UNDERSTAND THE RISKS
As with many choices, you need to find the right balance between cost and quality of service. Choosing a low-cost, second-rate logistics provider could open you up to the risk of non-compliance regarding safety, legal requirements or customs regulations. You may also end up with poor execution meaning an inefficient supply chain. It could leads to late or unpredictable delivery times, causing customer dissatisfaction.
The most prevalent activities shippers outsource are domestic transportation (74%), warehousing (63%), international transportation (62%), customs brokerage (49%) and freight forwarding (49%).
The best logisticians will improve stock management, product traceability and the overall efficiency of your warehousing operations (putaway, picking, order preparation, etc.). They will also contribute to better forecasting. A low-cost provider may lead to you having more unavailable SKUs on the shelves or in stock for online sales. It can also lead to higher rates of ullage (broken or stolen products) or less visibility on your operations. Some of these possible outcomes are likely to bring stress and strain to the relationship with your logistics supplier which is unlikely to result in future improvements.
There are also some additional hidden costs that can be related to choosing the wrong logistics providers:
- Lower standards on security and cleaning can impact the quality of the products delivered to customers.
- Lack of compliance; for instance, not having the right level of fire protection can lead to hazards. It can also cause potential gridlocks or days without operations when authorities come to review shabby facilities and decide that they need to stop working.
- Higher insurance costs can have a significant impact on your operations’ P&L depending on the value of your products and average stock level.
- Costs related to the lack of flexibility or scalability when choosing smaller warehouses or warehouses with no additional capacity available.
LOOK FOR A PARTNER NOT JUST A SUPPLIER
To avoid this, you need to be prepared when choosing the best logistics partner to develop your business. You may not be able to afford the top-in-class. However, you should avoid the temptation of going for the lowest priced proposal. You want to look for a partner who understands your business. Not a partner who is simply going to store your products.
Make sure that the logistician has a view of the whole logistics spectrum. It is not as simple as finding a transport company. For example, freight forwarding service operators that propose to handle your broader logistics needs may propose an attractive price. Nevertheless they can lack the experience and expertise to offer the right service quality and actively contribute to enhancing the efficiency of your operation. They may simply provide warehousing services and staff with only basic skills.
Specialised ed players (on contract logistics for instance) comprehend the business needs of specific industries. They are able to provide services tailored to the needs of each customer. In this way they help their clients achieve their objectives by designing and implementing supply chain solutions that can evolve as the business evolves.
KEEP YOUR EYE ON THE BENEFITS YOU WANT FOR YOUR BUSINESS
Choose the right logistics specialist and you can get your products to market faster and more reliably. It will ultimately translate in additional sales or better profits. Outsourcing your logistics can help convert a 100% fixed costs base to more variable charges and improve e the performance of your supply chain at the same time. You should clearly identify the financial implications and balance the cost of your new outsourcing partner’s services. For that, analyze the savings you forecast to make in terms of day-to-day operations and reductions in your fixed costs. In addition, try to fully comprehend and quantify the numerous other benefits. For example, working with an expert means you will always stay on top of the latest innovations in the sector.
And don’t be tempted by the lowest price. The consequences of poor service quality will remain long after you have congratulated yourself on driving down the price.