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The key determinants for logistics outsourcing From a shipper perspective
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DescriptionThe key determinants for logistics outsourcing From a shipper perspective
The practice of outsourcing logistics operations has grown significantly over the past few years. However, economic volatility and uncertainty have impacted global business markets recently and in turn, global markets for thirty-party logistics (3PL) services. According to the 2012 3PL study reported that a majority of shipper respondents, 64%, are increasing their use of 3PL services, while 24% are returning to in-sourcing some 3PL services and 58% report they are reducing or consolidating the number of 3PLs they use. Based on these results, it seems that while some shippers are considering a return to in-sourcing of some logistics activities, but the predominant direction is to move toward increased use of outsourced logistics services. According to these situations, the problem of the decision to outsource (or not) logistics activities need deeply thinking.
The purpose of this article was to identify the factors that determine the outsourcing decision of logistics activities, then explain the main attributes which a logistics service provider (LSP) should have to be contracted by a leading grocery retailer.
In section 1, a literature review on the outsourcing theories, benefits and risks of logistics outsourcing was undertaken to help to discuss the relevant factors influencing make-or-buy decision. And then, in section 2, after analysis of the status quo of outsourcing in leading grocery retailer, the main attributes which a LSP should have will be identified from 3 perspectives in the relative marketing segment.
Literature review of logistics outsourcing
Definition of Logistics outsourcing
As for logistics outsourcing several synonyms are often used: “outsourcing”, “third party logistics” or “contract logistics” (Larson & Kulchitsky, 1999). Lieb et al. (1993) had defined that “Logistics outsourcing is a process that involves the use of external logistics companies to perform activities that have traditionally been performed within an organisation, where the shipper and logistics company enter into an agreement for delivering services at specific costs over some identifiable time horizon.”
According to Tage (2000), it “presupposes that several characteristics are fulfilled before the relationship between buyer and seller” such as “a certain duration, joint efforts to develop further cooperation, a customersation of the solution, together with a fair sharing of benefits and risks”.
Benefits and risks when outsourcing
A variety of benefits and risks in relation to 3PL have been reported in the literature. These can be classified as strategy-related, finance-related and operations-related (Selviaridis and Spring, 2007). Benefits and risks of logistics outsourcing are classified as strategy-, finance- and operations-related as Table 1 below.
Outsourcing non-strategic activities enables organisations to focus on core competence and exploit external logistical expertise (Sink and Langley, 1997). From the financial aspect, the most important benefits of logistics outsourcing are reduction in asset investment (turning fixed cost into variable), labour and equipment maintenance costs (Bardi and Tracey, 1991). ...
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