Benefits of Logistics Outsourcing

Outsourcing may be applicable to wound areas. SpdLoad company writes in great detail about outsourcing web development. Outsourcing is the transfer of some of the key functions of the company to contractors from outside. A feature of outsourcing is that the contract for the provision of certain services is concluded for a long period (from six months to several years), that is, this is not a one-time promotion, but long-term cooperation.

The relevance of outsourcing

According to statistics, business owners turn to outsourcing at a time when they urgently need to maintain their competitiveness. The strategic advantage of outsourcing is that the management of the company can use all the time resources to organize key business processes. When choosing a contractor, a businessman is only interested in the cost and quality of services, since all responsibility, including financial risks, is passed on to the shoulders of partners.

Due to the fact that part of the subordinates is transferred to the staff of the contractor, the investment attractiveness of the enterprise increases: the effectiveness of each individual employee grows, which affects the values of the company as a whole.

Outsourcing in Logistics

Logistics outsourcing has been quite popular lately. It is the most optimal way to solve logistics problems for business structures. Logistic outsourcing implies that individual logistic functions are transferred to a specialized operator with both experience, means and a wide infrastructure to carry out the required operations.

Thus, the costs of own logistics in the company are significantly reduced. Judging by the experience of foreign companies, the cost of logistics when using the services of logistics providers is 1%. At the same time, the quality of service and service is significantly improved, which can be compared with a 10 percent increase in sales.

The following functions of the enterprise can be transferred to logistic intermediaries and providers: information support of the warehouse; cross-negotiation; Warehousing recycling; Inventory Management; cargo escort.

Moreover, the logistics intermediary provides services within one or two functions, and the logistics provider performs a set of functions. For example, the distribution of finished products of a manufacturing enterprise or the organization of cargo delivery in international traffic.

Transfer of logistic functions to a specialized organization:

• the possibility of increasing the efficiency of their own activities due to exemption from auxiliary and non-profitable work for the enterprise, therefore,focus on the main activities;
• the need to strengthen competitive positions by improving the quality of customer service, providing them with services that the company cannot provide on its own;
• the desire to reduce the cost of performing logistics operations that are carried out by specialized organizations with higher productivity and accuracy due to their experience and the scope of activities, unique technologies and equipment;
• the lack of experience and qualifications of its own personnel for the performance of individual works and the desire to use a positive reputation or a popular brand of a logistics service provider to increase competitiveness.

A number of factors can contribute to the decision against the transfer of functions to an external provider:

• outsourcing of functions may lead to leakage of classified information and reduced efficiency in providing information for enterprise management;
• the refusal of an enterprise to perform certain functions may lead to complete dependence on external executors;
• the risk of losses due to the low quality of services is sufficiently large if there is no effective logistics intermediary or provider on the market;

Integrated logistics focuses on planning and optimizing part or all of the supply chain; logistics of “placement” specializes in the provision of certain assets (eg, trucks, warehouses, managers) to each consumer.

Consider the main ones:

• Distribution costs. When the issue of outsourcing is being decided, many companies refuse it in favor of maintaining distribution functions on their own, because the company may already have storage facilities, a car fleet, etc. Nevertheless, the possibility of outsourcing can also be considered in this case, since it is more important to consider the question of the cost of operating the existing economy.

In addition to personnel and real estate costs, there are costs that are difficult to allocate in the balance sheet structure, but which are no less important. These are the costs of transportation management, security, vehicle operation, information services, taxes, resolving issues with the administration, staff, legal support.

• Control of supply chains (supply chains). Information is an important aspect in the logistics of the enterprise and the main source for control of the supply chain

It is believed that the transfer of logistics management to a third-party enterprise will lead to a loss of control over the supply chain. However, many 3PL providers like Red Stag Fulfillment have at their disposal advanced, proven technologies with which they can combine the storage and transportation processes into a single information stream.

• Flexibility. Today, market conditions are changing: very rapidly, and companies wishing to be competitive require a quick response, both from their internal divisions and from the companies with which they signed an outsourcing contract.

• Customer service. The state of the organization can vary from survival to development, depending on how well the company meets customer expectations. It can be expected that the internal services of the organization feel this more acutely than a third-party organization.

For service organizations, the provision of services is a means of survival, and therefore their success directly leads to the success of the client company.

When choosing an external logistics partner, it is advisable to find a provider who is ready to discuss the needs of customers of the organization – the partner in addition to its own needs. Standards must be set for key performance parameters. Professional providers can support a range of quality improvement programs and typically include performance metrics in their contract. They are ready to discuss agreements on the basis of participation in the sharing of profits, in case of exceeding expectations, and are willing to pay a fine if they can not cope with the task.

• Seasonal support. Many shippers have a range of products with significant seasonal variations in demand. These fluctuations affect distribution and transportation volumes. Maintaining inflated fixed assets can lead to unnecessary costs.

According to statistics, companies that specialize in outsourcing are much more interested in improving the profitability of the enterprise than their own staff. The thing is that the executing company is fully responsible for all its decisions and actions. Based on all of the above, we can say that logistics outsourcing is a powerful potential for the development of companies in the market.