Sample paper on Improving Internal Logistics Structures versus Outsourcing Logistics

The quality of logistics is extremely crucial for the accomplishment of the company’s goals including everything from shipping, warehousing, transportation and delivery. Smooth running logistic or distribution operations result to improved customer service, lower costs, and increase in the overall profitability of the company.

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Thus, company should ensure that it puts in place efficient and effective supply chain mechanisms that will provide it with a competitive advantage. Since it is the supply chains that compete, and not companies, an efficient supply chain translates to competitive advantage. The company is to choose between improving its in-house logistic operations and securing the services of a third party Logistics Company.

  • Objective

This focus of this report is to compare and contrast the benefits of improving the firm’s logistics structures with employing the services of an out-house logistics company. The paper analyses the two along different logistics aspects in an effort to recommend the most effective and efficient option that will see the firm achieve a competitive advantage.

  • Analysis

2.1 Shipping

Through an in-house logistic structure, the company has to ensure that coordinates shipping process, but it will have to choose a carrier based on its own experience. Thus, it will solely depend on advertisements or referrals, which may turn out beneficial or otherwise. The company may not be in a capacity to influence certain operations of the preferred carrier. On the other hand, outsourcing the logistic process means that the party will be responsible for the shipping process. The third parties have education, knowledge and experience in the industry and have adequate capacity to manage the process from start to finish (Kaminsky, 2008). The experience allows them to guarantee fast and efficient service in terms of shipping information processing such as clearing with customs.

Moreover, the third party can get better shipping rates relative to when the company goes through the process alone. This is because they have the expertise to ensure that the cargo is transported by a carrier that in inexpensive and safe through their vast network of carriers (Lynch, 2001). For instance, they can bid the shipping process, and the bidding war results to better shipping rates. The company is not in a position to conduct such a process. In addition, a party can get shipping discounts by teaming up with other parties using the same route (Hwang, 2005). This means that the firm does not need to fill a 40 feet container since a logistic company can include other orders in the same container, which helps to reduce the shipping rates.

In addition, third party logistic firms have the ability to manage the safety ratings and insurance certificate better than the company, which aids in the vetting process. A third company will be in a position to provide economies of scale through lower operating costs per unit load since they can leverage the whole process for substantial discounts with many trucking firms something that the company cannot achieve singly. The firm will be able to save its shipping costs while also speeding the process as third party logistic company have knowledge of which carriers offer fast services (Efendigil, 2008). This will see a reduction from the 12 weeks that the firm is used to receiving its consignment after placing its order. Also, their information processing advantages allow reduced shipping time.

  • Basic Costs

Improving the company’s logistics operations requires the firm to invest in facilities, technology and infrastructure so as to meet the needs and desires of its consumers, and the markets in general (Zaim, Demirbag & Tatoglu, 2008). The firm has to buy its own fleet of trucks to allow it transport the glass to the warehouses and to customers within its market as the Australian post may lack the capacity to transport larger volumes of glass at reduced costs.

In addition, the firm will have to construct or lease its own warehouses to cater for an increase in demand keeping in mind the inquiry from Myers. The company will also be required to invest in information technology to enable it to manage the logistic process including stock tracking and fleet management (Harrison & Hoek, 2002). This will ensure that the firm can handle its internal logistic operations to deal with the market dynamics. However, achieving this will come with huge capital investment. On the other hand, outsourcing the logistics process to a third party will see the company transfer the provision of these facilities, infrastructure and services to him; hence, the company will avoid costly overhead charges and expenses that come with fleet insurance and maintenance, cross docking expenses or fixed warehouse, and fluctuating equipment demands among other expenses.

What is more, the firm will avoid the liabilities, wages and compensations that are associated with keeping an in house warehouse staff (Gadde, 2001). The thirty party logistic companies owns, manages and operate its own transport and warehouse facilities, and it will be responsible for carrying these operations for the company. Therefore, it enables the firm to reduce the total amount it pays on transportation, delivering, warehousing while at the same benefiting transparent and predictable pricing.

  • Efficiency in Operations

Employing the services of a third party will increase the efficiency of the firm’s retail logistics as the company will have the ability to leverage the proven expertise and processes of the third party whose focus is logistics (Murphy, 2000). What is more, the party is in a position to respond promptly to frequent volume demands, which is one of the problems experienced presently by the firm. Improving the in house logistics infrastructure will also allow the glass company to respond quickly, but not at the same rate as the third party due to superior resources. For instance, the issue of late orders placement will not be a problem as the improved internal structure and the third party as well may meet the delivery time, but this will depend on the location of the customers relative to the location of the glassware.

A third party logistics company may be better placed to beat tight orders due to more elaborate and efficient networks relative to the company’s improved structures. Further, by improving its internal logistic structures, the company will be in a position to ensure that its products reach their destination damage free through various protection mechanisms. However, an experienced logistics company can guarantee reduced damage to the products due to their access to sophisticated and custom-made fleets (Hwang, 2005). In the same vein, the company can hold the third party logistic firm completely accountable and responsibly for handling warehousing, transportation, deliveries, and aftermarket support based on the standards set by the company. Otherwise, it will have to cater for the cost returns and refunds, which can be transferred to the third party; that is, in the event of damages, the logistics company replaces the products without charging the firm. Consequently, this reduces the worries of damages replacement costs while at the same time avoiding return trips to replace the products. More importantly, it is easier to change a non-performing contracted logistic company when compared to replacing an entire internal department (Gadde, 2001).

Additionally, the company will concentrate on multiple departments when it decides to improve its internal logistics structure (Lynch, 2001). It will have to put up structures to support its transport, warehousing, human resource, marketing and the overall glassware business. This may result to reduced efficiency in the whole logistics process. The firm will have to set aside and budget for these processes and operations sometimes at the expense of the main focus which is selling glassware. Note that transportation and warehousing is not the key reason for the establishment of the business; thus, the company will be forced to deviate from its focus of customer service and selling glassware to the other operations.

On the other hand, the business aim and focus of a logistics firm is warehousing, transportation and related operations. Therefore, by outsourcing logistics, the company will be able to focus on its core business while the logistic partner performs its core business thereby improving efficiency (Harrison & Hoek, 2002). This is because the firm will be able to do what it planned to do and does best while the logistic partner does what it has experience (Mohan, 2006). In-house logistics systems ensure that the firm retains and preserve its inventory information, which is not the case when it comes to outsourcing logistics (Svensson, 2001). Inventory information is crucial as it acts as a performance indicator, and lack of it may affect the company’s future supply chain strategies.

  • Accountability and focus

Improving the firm’s logistics structures will enable it to maintain and improve its distribution culture in terms of consumer satisfaction, attraction and retentions while at the same time creating a strong working relationship with key stakeholders in the industry (Quinn, 2000). Outsourcing, on the other hand, may result to the firm losing its identity to the third party as it will be the one interaction with the clients; thus, losing its accountability and control in the logistic operations (Zaim, Demirbag & Tatoglu, 2008). The perceived loss of logistics activities direct control may stem from the requirements to integrate information and computer systems and cultural differences between the firms. Also, the partner may fail to handle the firm’s brand and merchandise in the same way that it could have done through its internal logistics structures (Quinn, 2000).

However, these issues can be addressed by hiring the correct partner that has the interest of the firm in mind (Kaminsky, 2008). This logistic company is willing to be accountable for the performance standards set by the firm. The partner must be willing to take performance-based incentives, as this will portray his accountability readiness. Through its own transport fleet, the company will have an opportunity to promote its brand, which cannot be guaranteed when a third party is used. Even though the firm may lose its branding by using a logistic company, there are some companies that upon request can brand their uniforms and trucks with their clients’ logo to ensure that their customers sees the firm’s brand or logo throughout the interaction (Persson & Virum, 2001).

The partner will also be responsible for caring the firm’s products as well as customers. Some logistic companies have on-site staff and management that ensure that the needs of the clients are met including setting performance standards, and this can be equated to the firm’s logistic management staff (Selviaridis, 2007). Further, the firm may require frequent survey to establish whether the internal logistic structures are meeting the set targets or not. In addition, certain logistics companies provide independent customer service surveys to monitor their performance standards together with their clients’ clients (Zhao, 2008).

  • Innovation

Implementing and owning an improved internal system will increase the level of innovation, as the firm will seek to increase its competitive advantage. The firms will be on a constant survey and monitoring to ensure that its supply chain is more efficient and effective than ever. It may also, invest in research and development, which will be beneficial to the firm in the long run as it will be in a position to utilize competitive processes and operations in its products’ distribution system. By involving a third party, the company may not see the need for researching or devising better distribution systems, and this may act against it in the event that it terminates its partnership with the third party logistic company (Hwang, 2005).

However, employing the services of a logistic company may see an improvement in the supply chain as the partner may team up with the company to come up with a specific and more efficient system than what the company can achieve alone (Efendigil, 2008). This includes extensive use of technology and innovative ideas while at the same time committing resources in ways that the company might not be able singly (Quinn, 2000). For instance, a third party logistic company may come up with more efficient technology to track the movement of all products along the supply chain (Mohan, 2006). In terms of managing individual contracts, prices between the company and the retailer improving the internal logistics structures will not help as the firm will still retain the same customer base. Even though the improved structure may reduce the cost of maintaining individual contracts, it may not do away with them.

Moreover, they will want to continue with the same pricing structures, and the firm will have to comply no matter the types of structures it employs. On the contrary, the present customers will have to adapt to the pricing and payment structure of the third party logistics company as the contractual relations have changed. In addition, the logistic company will be responsible for implementing and maintaining these systems. The logistic partner will be in a capacity to over flexible payment systems and the company will be able to get paid on time by the partner provided the agreed time is due, and customers have accepted the delivered products.

  • Visibility and standardization

A logistic partner is better placed to assist the firm with visibility, collaboration and standardization along its distribution chain relative to an in-house logistic structure (Lynch, 2001). This is because of their ability to interact with multiple supply chain stakeholders, which allows it to standardize processes and data that allow it to provide visibility that a single company cannot on its own. This is because even if the firm improves its logistic structures, it will apply it on its operations alone as compared to a third party logistics firm that employs its structures on multiple companies operations, and this gives it more visibility. Also, standardized processes allow for smooth hand-off and goods flow among all stakeholders of the supply chain (Zhao, 2008).

What is more, an in-house structure will not be able to offer or facilitate collaboration when compared to that of a logistic company as they are better placed to see opportunities in the supply chain due to visibility and standardization, which may lead to reduced distribution costs.

  • Flexibility

The improvement of the firm’s logistic structure will allow it to be more flexible relative to meeting customers’ dynamic demands. This is the same when considering outsourcing logistics. Comparing the two options will indicate that outsourcing provides more flexibility and agility to accommodate future and current market challenges and needs especially in terms of demand fluctuations. Therefore, the firm will be in a position to handle urgent orders without worrying a lot. The market dynamics means that some processes will be temporal; hence, improving the internal structures may be costly as some of the structures may be underutilized most of the time (Bottani & Rizzi, 2006). Thus, outsourcing will provide more flexibility in the supply chain.   Improving the internal structures will allow the firm to process and deliver small orders through improved transportation and warehousing, but its efficiency will depend on the concentration of the retailers in specific regions. Since the orders are in small quantities, it may not be feasible for the firm to commission its truck to deliver to a single retailer.

On the other hand, outsourcing will be more efficient when dealing with small orders as it may bundle the orders with other orders from other customers thus reducing costs per load (Selviaridis, 2007). As a result, the company will be in a position to offer lower rates for their services relative to what the company would have incurred in processing and delivering the orders in-house.

  • Recommendation

Based on the analysis, it is recommended that the company should secure the services of a third party logistics company. This is because a logistics company is better placed to address the issues presently experienced by the firm.

  • Conclusion

Third party logistics companies serve an important role in achieving efficient processes in the supply chain as well as effective logistics integration as they act as glue that binds individual supply chain stakeholders together. More so, they are eliminators of uncertainty and risk in the supply chain as they have superior resource to manage the distribution networks. Outsourcing logistics will leverage the delivery of the firm’s services and reduce its operating costs. In addition, at allows the firm maximize its resources, reduce risks, and focus on matters that are crucial to its growth and survival. A logistic company will ensure that the firm saves time, effort and money as it reduces the need for vehicles, warehouse storage and human resource to manage the logistics process. In the same vein, the firm will be able to avoid, or lower capital expenses and fixed expenses thereby allowing the firm to employ these resources on the core activity.

Further, the consideration of the above recommendation, the firm will be able to overcome its present problems including breakages, processing and delivering small orders, late payments, shipping constraints and flexibility issues.

The company is expected to come up with relevant and competent systems and processes to monitor if the third party logistic company is meeting the predetermined goals. Moreover, the firm has to give the outsourcing process all the strategic attention it deserves.

 

 

 

 

 

 

 

 

 

 

 

References

Bottani, E. & Rizzi, A. P. (2006). Methodology to support outsourcing of logistics services. Supply Chain Management International Journal. 11(4), 294-308.

Efendigil, T. (2008). A holistic approach for selecting a third-party reverse logistics provider. Computers & Industrial Engineering Journal, 54(2), 269-87.

Gadde, L. (2001) Supply network strategies. Chichester: Wiley & Sons

Harrison, A. & Hoek, R. (2002). Logistics management and strategy. Essex: Prentice-Hall.

Hwang, H. (2005). Supplier selection and planning model. International Journal of Logistics and Management, 1(1), 47-53

Kaminsky, P. (2008). Designing and managing the supply chain. Boston: McGraw-Hill.

Lynch, C. D. (2001). Developing a strategy for outsourcing. The Logistics Management and Distribution Report, 40(6),102-9.

Mohan, R. (2006). Third party logistics practices. International Journal of Physical Distribution & Logistics Management, 36(9), 666-89.

Murphy, P. (2000). Third-party logistics: Some users’ perspectives. The Journal of Business Logistics, 21(1), 121-33.

Persson, G. & Virum, H. K. (2001). Growth strategies for logistics service providers. International Journal of Logistics Management, 12(1), 53-64.

Selviaridis, K, (2007). Third party logistics. International Journal of Logistics Management, 18(1), 125-150.

Svensson, G. K. (2001). The impact of outsourcing on inbound logistics flows. The International Journal of Logistics Management, 12(1), 21-35.

Quinn, J. L. (2000). Outsourcing innovation. Sloan Management Review, 41(4), 13-

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Zaim, S., Demirbag, M., & Tatoglu, E. (2008). Hybrid analytical hierarchy process model for supplier selection. The Industrial Management Data System, 108(1): 122-42.

Zhao, X. L. (2008). The information technology capability of third-party logistics providers. Journal of Supply Chain Management, 44(3),22-38.

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