Planning & Guidance for
Logistics Outsourcing
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Options for outsourcing
As businesses experience growth, they often face increased demand for facilities, constraints at existing manufacturing sites, and the need to adapt to evolving supply chain pressures. Whether driven by strategic planning or the necessity of cost savings, outsourcing can provide a practical solution to these challenges.
When considering outsourcing, it’s essential to evaluate which aspects of your operations are best suited for external support. This decision requires a careful analysis of operational components, weighing their suitability for outsourcing alongside potential cost implications, performance variations, and the financial impact of engaging a third-party logistics (3PL) provider.
A well-defined outsourcing strategy ensures your business can respond effectively to new, growing, or shifting demands while maintaining high performance and cost efficiency. By aligning your outsourcing decisions with your business objectives, you can address operational constraints and unlock new opportunities for sustainable growth.
Uses of Outsourcing
The use of outsourcing can be a strategic decision or driven by management and cost saving. Once a decision has been made to consider outsourcing there is a need to identify the parts of the operations in respect to possible outsourcing options. The decision on the strategy should most importantly consider how suitable the various parts of the operation are for outsourcing the costs, any difference in performance a 3PL may offer, and any other financial implications that would result.
The options available vary as do the benefits and can be one of the following:
A 3PL provides management and operational resource within your own warehouse to pass the entire operation over to a 3PL facility either as:
- A single user site
- A multi user site
Utilise a 3PL to carry out certain functions such as:
- Receiving /consolidation
- Specialised value added activities
- Pick and Pack
To let a 3PL use their own WMS or provide a system for a 3PL to use a cost benefit analysis will help identify the course you need to follow, for instance:
There should also be a performance gap analysis included which is an objective assessment of company performance, strengths, and weaknesses supported by metrics and benchmarking comparisons if necessary. Use of outside expertise can be very useful in order to obtain objective results.
Consideration should be given to evaluating process details in light of the performance gaps to determine the most likely candidates for improvement through outsourcing.
Tender Preparation
The more comprehensive the preparation of the tender document is the better and more accurate will be the responses. It will also reduce the requests for clarification and extension of time from potential contractors. External help should be sought if you don’t have the knowledge internally to assist in preparing a tender. LPC has the experience to produce this document and supporting tables, response sheets etc.
Details and flows that, for instance, we would want included:
It is also necessary to provide the following which are just as important, if not more so:
Specify the evaluation criteria which may include:
Tender Evaluation and Contractor Selection
The evaluation is closely based on the details requested in the Tender documentation and while costs will doubtless rate highly it may well not be the cheapest that should get the recommendation.
Review all the responses either in conjunction with or after an independent expert, such as LPC, has provided an unbiased overview and score them and weight the results according to priorities. A short list of the preferred two or three of the respondents to proceed to the next stage of the evaluation should be determined.
Get the shortlisted 3PL’s to present their solutions and then set up visits to existing sites in order to evaluate:
Implementation
The all-important contract and service levels will be the start of the process. Ensure that all the KPI’s and service levels are tied down along with penalties for failure and bonuses for making savings/ over achievement if appropriate.
There are several elements that will govern the implementation of a move of an operation to a 3PL.
Two prime considerations may well be:
- Dates and or penalties of vacating existing premises
- Business seasonality, timing to avoid peak periods
Once the decision to move has been made a detailed plan will be required for how stock and order fulfilment will migrate. Some of the points to consider are:
- Can fulfilment occur from two locations? (it may have to for a while)
- Can intake migrate first?
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Case Studies
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