Looking to Outsource Logistics? A Guide to Go from Pain to Gain
Around the globe, value-added services are becoming an integral part of the logistics market, reports PR Newswire. Meanwhile, the overall value of the global logistics market continues to exceed $4 trillion, and the demand on the industry is only increasing. As a result, more companies and organizations are turning to third-party logistics providers (3PLs) to outsource all or partial logistics operations. Unfortunately, entering the realm of outsourced logistics blindly can have devastating consequences, but you can go from pain to gain when you outsource logistics by following the steps in this guide.
Hemorrhaging Cash or Encountering Disruptions in Product Flow: Assess Current Logistics Operations.
Companies that want to outsource logistics begin processes tend to have common problems at onset. They may be hemorrhaging an untold amount of cash flow, or the flow of goods may be continually stalling, due to natural or man-made disasters. While some businesses may opt to simply continue “trucking along,” the true fighters must take the following actions:
- Do something. You must be willing to start looking at your business with a critical eye. If you cannot see the problems, your business is doomed to fail. Make a move to begin the process of outsourcing by gaining buy-in from stakeholders or other parts of your executive team.
- Assess current operations, if possible. As explained by the University of Tennessee’s Haslam College of Business, your first duty is to assess the current state of your logistics operations and processes. You need to start working to identify the problems and solutions to your existing internal logistics trials.
Locate and Isolate the Source of the Problem(s).
Assessing current operations can be nightmarish, and you must find a way to generate performance measurements for each area of your logistics operation. The following steps can create a performance measurement score for your operation, explains Cassandra Campbell of Shopify, assuming no scoring system has been in place previously:
- Define each problem. Create a list of all suspected and known problems in your logistics processes.
- Define what is causing the problem. If you are unsure what is causing the problem, create a list of hypotheses. This will help you determine the most likely cause of the problem through the process of elimination.
- Determine if an internal solution can repair the problem. Depending on the size of your organization, an internal logistics solution may be available. Consider it.
- Are resources available for the proposed internal solution? An internal solution will come with a cost, and you need to ensure resources are available for this reason.
- How does the proposed solution evolve in the event of an unforeseen collapse or expansion of operations? If the potential losses from an in-house solution are more than the potential costs of outsourcing, move forward with beginning the outsourcing process.
Review Available Options to Outsource Logistics.
In an interview, reports Supply Chain Brain, Scott Vrablik explained the necessity of thoroughly creating a process to outsource logistics processes. These critical steps must include the following:
- Create a 3PL Selection Strategy or Plan.
- The 3PL should meet with the executive team.
- Outsourcing providers should understand the business, including customers, suppliers and pain points.
- Consider sustainability measures, if available.
- Review vested outsourcing versus immediate benefits.
Narrow the potential outsourcing partners down to a “hand full” of potential 3PLs.
Begin Negotiations With the Outsourcing Provider.
The next step to outsource logistics is starting the negotiation process. This is not a process that involves only one 3PL. Instead, the 3PLs will work to create a bid for your company. In a sense, the bid is the initial phase of contract negotiation. Upon receiving bids, ask the 3PL to review your business for eligibility for discounts, contract length, termination exclusions or restrictions, rebidding processes, payment processing and due-date requirements and usefulness in global trade. Each of these processes is further repeated in a second round negotiations once you have selected the outsourcing partner that most aligns with your needs and wants.
Follow Best Practices in Performance Measurement, Review, and Adjustment.
There are a few best practices that can help you succeed in the global supply chain when outsourcing logistics. According to Forbes magazine, the electronics’ giant, Avnet, demonstrates how effectively a long-term logistics partner can be to an organization. However, the following practices, reports Nicole Pontius of Camcode, can enable an organization to continually review outsourcing logistics processes and ensure the outsourcing provider is having a positive effect in the company:
- Define a mechanism for measuring performance.
- Ensure end-to-end benefits are realized by comparing KPIs to expected results.
- Check for discount availability.
- Look for experience among peers and a logistics specialist.
- Continue operating with a demand-driven view of outsourcing.
- Ensure the outsourcing provider’s strategy aligns with corporate strategy.
- Take advantage of technology improvements via the outsourcing provider.
Outsourcing does not eliminate your responsibility to stay involved in your logistics operations. Even though logistics processes are outsourced, you should still maintain a close eye on the operation. Ultimately, it is in the best interest of the 3PL to adhere to the requirements as dictated in your contract.
Some 3PLs may try “skim the edges” of the contract. As a result, you need an experienced and globally-known partner in logistics outsourcing with a dedicated transportation management system available, such as the Cerasis Rater. You have the opportunity to grow your business through logistics outsourcing, but understanding what it is and how to select the best partner are essential to creating a comprehensive, bi-directional stream of profits.