Supply Chain Management, Logistics, Outsourcing

Building value in logistics outsourcing

Customers' of logistics services are seeking greater reliability at lower total cost consistently – whether across the globe or in one sub-continent. But as higher performance from greater end-to-end integration, supported by better visibility tools, becomes more attainable, the approaches of providers are diverging.

More customers are recognizing that to realize the full value of the potential trade-offs from outsourcing, they need to broaden their span – from purchasing many piecemeal transportation and warehousing services, to fewer, bigger contracts with much wider scope.

In response, the Logistics Provider industry has been evolving to offer greater scope and more complex solutions. However, for the more demanding customer segments – those seeking greater integration and higher degrees of process conformance – there is often a gap between buyer needs and provider capabilities. Often, providers market and represent capabilities that they have not yet implemented, so they over promise and under deliver. The business model of most providers traps them because of their inability to scale offerings, thus failing to generate returns which will allow them to meet the
expectations of high process conformance buyers. High process conformance, in this context, is the ability to deliver end-to-end supply chain integration and synchronization repeatedly for many customers, establishing de facto process and technology standards.

For the more demanding customers, the provider model must be reinvented. So providers increasingly must innovate to profitably serve as big a footprint as possible across the large commodity segment and the growing, but more demanding, high process conformance segments.

The payoff for providers is tighter integration with customers along the supply chain, delivering greater value and increased “lock-in.” Increased complexity offers more opportunities to sustain higher margins. Success will be measured by their customers, in terms of how well they increase reliability and overall service performance at a reduced total cost.

An increasingly important criteria for buying logistics services will be the ability to obtain more global sources of supply and customers’ own outsourcing of manufacturing and other activities. The extended logistics network will require visibility from the off-shore manufacturer to final consumption, with synchronized and blended service level attainment.

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