SCM Trigger 2 - Outsourcing

1.      What are the advantages and disadvantages of transportation outsourcing?

In an attempt to enhance their competitiveness, organizations are increasingly turning to outsourcing. Outsourcing is the transfer of activities, that were previously conducted in-house, to a third party.

Main reasons for outsourcing:

Advantages and disadvantages of outsourcing:

Logistics is one of the most outsourced business elements. Finnish companies appear to have been outsourcing transport and forwarding far more than other countries compared. 

 Transport costs are still the largest single logistics cost item.

2.      How to outsource efficiently and maintain the quality of third party?

There are several critical success factors of outsourcing:

·        Understanding company goals and objectives

·        A strategic vision and plan

·        Selecting the right vendor

·        A properly structured contract. Outsourcing agreement should include:

o   Scope of services

o   Term of the agreement

o   Rates, fees, incentives

o   Termination plan

o   Conflict resolution

o   Communication

o   Management and control – procedures for managing and performing the services

o   other

·        Open communication with the individual groups involved

·        Ongoing management of the relationship

·        Senior executive support and involvement

·        Careful attention to personnel issues

3.      Risk management in outsourcing transportation.

• Technical risks – related to the extent to which the provider is able to provide the desired functionality and performance
• Commercial risks – related to the uncertainty with regards to the price payed and the costs incurred
• Contractual risks
• Performance risks – related to the chance that the supplier is not capable of doing the job it was hired for

Sources:

1.       van Weele, A. 2010. A. Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice. Fifth edition. Cengage Learning EMEA. Chapter 8, pages 181-205

2.       Ministry of Transport and Communications Finland. 2009. Finland State of Logistics 2009. Publications of the Ministry of Transport and Communications 21/2009. http://www.lvm.fi/c/document_library/get_file?folderId=339549&name= DLFE-7505.pdf&title=Finland%20State%20of%20Logistics%202009%20(LVM21/2009.