In my last session I went through the evaluation of the Profitability of Fulfilment in an Omnichannel Project, during this session we will examine one of most popular strategy to manage fulfilment operations that, in our case means Outsourcing Omnichannel Fulfilment.
Outsourcing means paying another company to handle an aspect of your business, with the idea that they will do it more efficiently and better than you could do.
Supply Chain Logistics & Distribution management is the backbone of Omnichannel, and for certain owners, outsourcing logistics services to experts can be a great solution, but this easy solution can be dangerous if not well approached.
It’s important to approach outsourcing from a partnership stance.
Allowing an e-fulfillment company to handle your Supply Chain Logistics means that you’re trusting experts to do what they do best, while you focus your personal expertise where it counts or you consider more critical in this specific moment.
Supply Chain Logistics & Distribution management requires careful planning, cost analysis, and experience to be optimized efficiently, and third party logistics providers have an investment in your company’s success.
For this reason, it is mandatory to avoid to think to logistic service provider as a spot supplier, but think of them as a partner dedicated to making your logistics the best it can possibly be.
In general the most popular reasons to outsource Supply Chain Logistics management are:
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Cut costs
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Use the size
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Get access to IT for Logistics
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Leverage innovation
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Risk management
CUT COSTS
Taking the time to train, implement, and optimize a good logistics team is costly.
Instead, using an externalized logistics company gives you direct access to a team of experts with the experience that you might not have.
This can be especially true if you’re looking to externalize for international export. Having a company dedicated to your logistics which is already implemented in your target country gives you access to insider market knowledge about your customers.
All the above need to be accurately evaluated during several approaches, considering that you nedd to understand if all they sell is what they really have.
To gain a sensitive costs reduction it is key to properly configure your processes.
The higher is your efficiency, the lower will be your outsourcing costs.
USE THE SIZE
The biggest advantage to using a 3PL provider is in leveraging their resources.
A Logistic provider could have exclusive access to a network of carriers, and could be better able to choose the best possible carrier for your inventory.
For example, companies looking to export into Europe will be able to use the best carriers in the EU, while utilizing methods of delivery that are unique to the region.
A 3PL company will also be able to consolidate shipping into larger freight and save each of their customers on shipping costs. In doing this, they can negotiate lower fuel surcharges and obtain shipping discounts by leveraging several customers into the same freight.
To leverage the size of your provider works better it is key your Planning process.
The more accurate are your volume predictions, the the lower the outsourcing costs.
Also in this case, it is recommended to share before the partnership starts the business requirements (the initially mentioned 3W) to know in advance what the service provider can propose as its solution (the initially mentioned 1H) for all your patterns (all 3W combinations).
GET ACCESS TO IT LOGISTICS
When choosing an appropriate back office software system, it can be difficult and expensive to get one that’s comprehensive and includes everything necessary to effectively run distribution, as one of the aspect that is often overlooked is shipping and logistics.
A 3PL provider’s transportation management system (TMS) is dedicated to Supply-chain Logistics management.
Logistics providers have already done the research and monetary investment in choosing (or even developing) an excellent TMS, and by partnering with a 3PL provider, you gain access to that system.
It is fundamental to consider in the evaluation of this capacity, that providers must be transparent with their clients in terms of process cost controlling, avoiding gaining advantage by clients’ ignorance. In fact, providers’ and clients optimization objective can frequently conflicting.
For example, Companies need to continuously verify that cost optimization are gained thanks to lower quality of service.
To properly configure your IT it is key your Requirements definition.
It is not necessary to implement the best IT application, while it is fundamental to get the It system that covers all your needs.
LEVERAGE INNOVATION
Supply Chain Logistics & Distribution management is constantly changing, especially in a globalised world.
Reputable 3PL providers are always innovating to make their business more efficient, and that innovation passes on to you and makes your business more efficient too.
But it important to make it clear that this does not mean that Companies with Supply Chain Logistics outsourced to 3PL providers can elude to be involved in the control of their operations.
On the contrary a Company, even if outsources to a Logistics provider, need to staff a dedicated team of experts monitoring and analyzing Supply Chain Logistics & Distribution process every day.
Innovation means development with involvement.
Innovation cannot be forgotten, it is key to continue to get the evolution under control, even if not directly handled.
In this way you will be in the position to request the most up to date solution.
RISK MANAGEMENT
Creating a partnership with a 3PL provider can help in terms of risk management.
From the moment your inventory is in the hands of an logistics service provider, they should handle the safekeeping and delivery of your products. In fact, 3PL providers usually have experience managing carrier contracts, safety regulations, and insurance administration.
It means that if anything is lost, stolen, or damaged, they’ll have it covered on their insurance, which removes insurance costs on your end.
3PL providers could also handle auditing of carriers and of their own warehouse facility to reduce as much shrinkage as possible.
When exporting, a logistics service provider can provide tax and legal services as well, especially if they’re specialized in export services, protecting their clients from fines and penalties that could slow the process abroad.
Work with a specialized Logistics service providers can be particularly useful for dealing with the tricky variable VAT system in the EU, minimizing legal and tax operations effort.
To reduce risk in your outsourcing it is fundamental to accurately assess the reputation of your partner.
CONCLUSION
All the above reasons are the most popular and it is not uncommon to be confirmed.
Anyway, it is fundamental to assess one by one the declared capabilities of your future partner and, even more important, to not leave at himself afterwards.
The key of a successful partnership is the possibility to verify results vs. promises on a timely basis.
For this reason, it is fundament to establish a KPI Dashboard with the Logistics providers and monitor the fulfilment process from inside, requesting free access to all resources and data.
