What are the advantages of outsourcing?

Outsourcing is a common practice of contracting business functions and processes to third-party providers. The benefits of outsourcing can be substantial – from cost savings and efficiency gains to greater competitive advantage


Benefits of Logistics Outsourcing

In logistics, there is a need to move and store a considerable amount of material at different locations. Raw materials and components have to be transported over long distances from vendor supply points to production centers. These materials have to be stored for some time in the form of raw material and later in the form of finished goods. Finished goods need to be transported to the point of consumption. With so much to be done, there are important reasons why companies outsource logistics activities:


1. Better focus on core competencies

2. Cost saving resulting from better management of supply chain

3. Cross pollination of better available practices

4. Wider and better geographical coverage by access to specialist world class capabilities

5. Improved re-engineering benefits

6. Lesser internal resources


What are some barriers to outsourcing?

Critical Issues in Logistics Outsourcing

Following are some of the key issues that need to be addressed and examined before deciding on a 3PL or 4PL partner:


  • Switching Cost
  •  By outsourcing logistics services, the existing assets of the company are restructured. This includes activities such as:
  •  Management of existing assets by the service provider
  • Leasing of existing assets to the service provider
  • Divestment of existing assets and switch completely to use of logistics infrastructure provided by the service provider


Degree of control(Human and electronic interface)

The firm, which is outsourcing, has to be particular about the degree of control it has over the activities of the service provider, so that they get the service desired by the end user. It is not possible to have direct control over the activities of the service provider's employees, but the service provider should ensure that information is available in time to monitor the activities.

Human and Electronic Interface: A proper interface between the employees of the two organizations is vital to resolve issues that arise out of misunderstandings or miscommunications. The work of the coordinators of both the organizations is crucial in formulating policies and guidelines for the smooth functioning of the outsourcing firm and the service provider.

Tuning logistics services to the needs of channel partners: For an efficient channel management, logistics is a key enabler. Indeed, channel and logistics management have to go hand in hand for an efficient and effective physical distribution system. The key areas of interface between channel and logistics management are defining the logistics standards required by the channel.

Member, Logistics Programmers Designing standards, implementing programmers and monitoring programmers.


Degree of outsourcing

Various business organizations resort to logistics outsourcing depending on the following factors such as the existing logistics infrastructure of the company, product portfolio of the company, management policy for third party involvement.

 Conclusion:

Logistics service providers basically help the organization to achieve two major goals: reducing the operational cost and also increasing the revenue. When the service provider organizes the required logistics assets, the customer's investment in owning the logistics assets is reduced and thus the firm can invest in more productive activities and also earn higher returns on the remaining assets. Exposure to and familiarity with best available practices and techniques used by service providers is a knowledge-seeking activity on the part of the firm.