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Should your company Outsource the Management of its Logistics Operations?

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As baby boomer logistics leaders move into retirement, their successors are tasked with directing the company’s distribution operations. Informed business leaders realize that we are in a period of profound changes. Companies such as Amazon and Uber are disrupting current business models. Technology and automation are altering manufacturing processes. Ecommerce and omni-channel distribution are upsetting existing retail processes. As my colleagues and I meet with shippers, we find many companies are exploring their options. Should they try to manage these changes in house or should they enlist the support of outside resources?

In-House or Outsource?

It is important to understand that business leaders do not face a binary choice. The field of Logistics is more complex than it has ever been. Senior logistics professionals must possess a variety of business skills and possess a depth of knowledge in a range of areas such as supply chain design and management, warehouse and inventory control, customer service, transportation and information management. These leaders must then be able to adapt and apply their skills and knowledge to specific companies in the manufacturing, distribution and retail sectors, including bricks and mortar and eCommerce organizations. This leads to a fundamental question for every organization. Does the company have a set of leaders who possess this range of skills and knowledge?

While it is unlikely that one senior executive will possess all of these attributes, the broader question is does the company possess these skills across its logistics management team. If not, what skills and knowledge does it need to import from external sources? This article outlines how to create a leadership plan (http://www.supplychainquarterly.com/news/20170428-how-to-plan-for-future-supply-chain-leadership/?utm_medium=email&utm_campaign=Executive%20Insight%20 ).

Should we hire a Consultant or a Logistics Company and/or a Recruiter?

Once a company goes through the exercise of identifying its logistics strengths and weaknesses, in conjunction with its supply chain goals and objectives, it is then in a position to determine which skills, if any, it needs to acquire.

Does the company require a TMS system and the IT expertise, internally, to document its needs, prepare an RFP and recruit vendors that match up best against its business profile? Does the company need to redesign its network operations or craft an effective strategy to structure the optimum mix of distribution channels? Is the requirement more extensive? Does the company have a leader or leaders who can drive the organization’s logistics operations?

Every company has a different set of logistics requirements; every company requires a unique logistics management strategy. For companies that have some major gaps in their logistics organization structure, a top industry recruiter may help fill the gaps. Some companies need to pay for consulting expertise for a specific period. If they need an IT or process resource to perform specific functions, a consultant may meet the need. Once the task is performed, they then need to bring the management of the new process in-house.

For those companies that don’t wish to make the investment in in-house expertise, or hire a consulting company to provide the expertise, they have the option of outsourcing some or all of the management of their supply chain operations to one ore more logistics service providers. Shippers need to be aware that LSPs have a consulting arm.  These are the people who design the logistics solutions for their clients.  

On the other hand, these companies will try to adapt their clients’ requirements to their business model, IT capabilities and carrier network. These so-called “consultants” are working for their LSP. This must be kept in mind by companies that take this route.

Going the 3PL route begs another question. Does the company that is doing the outsourcing have the resources and KPIs necessary to manage the logistics service provider or providers?  While it can be advantageous for some companies to outsource some or all of their logistics operations, these functions need to be scrutinized and evaluated. Otherwise, the shipper loses control and is essentially at the mercy of their LSPs.

We see some smaller organizations that place the logistics function in Finance and deploy a set of mid-level managers to lead these technical departments (i.e. transportation, order processing, inventory management), with varying degrees of success. Smaller companis cannot abdicate their responsibilities to manage their supply chains. While they may not be able to afford or require a high caliber logistics executive, they have an obligation to make sure that the executive, and the team supporting the logistics leader, receive training to perform these functions at a high level.

Larger organizations will often utilize two or three options. This raises another set of issues. Just as some shippers don’t possess all of the requisite expertise, neither do all consultants or LSPs. Some logistics companies specialize in certain industries (i.e. automotive, refrigerated products) and in certain functions (i.e. transportation management, return goods management) but have gaps in other areas (i.e. retail, warehouse design).

In other words, the company seeking external resources must do their due diligence to make sure that the organizations being evaluated and recruited will possess the skills to achieve excellent results. Here are five traits to look for when choosing a logistics consultant) (http://blogs.dcvelocity.com/logistics_problem_solving/2017/05/five-traits-to-look-for-when-choosing-a-logistics-consultant.html ).

A smooth functioning supply chain can be a business differentiator. Take the time to carefully assess the value of each of the three options for your business.

 

To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).

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