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| Sunday, 16 November 2003 |
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Business |  |
| News Business Features Editorial
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Logistics facts of life We continue to hear about how companies have saved millions of dollars by giving out their logistics operations to a third party logistics provider. Yet most companies are still unaware when to actually outsource its logistics functions and how to set about managing this process. Thus all too often we hear " I know its something we need to do, I just don't know how to do it". The first step to outsourcing is to identify ones need for logistics assistance.There are several signs that predict this repeated delivery mishaps, excessive inventory, expansion into new markets, need for costly investments in distribution networks and information systems. Above all this a company will first have to decide if managing logistics is a part of its core competency. Then there is the need to take stock of its entire distribution chain map out the effectiveness and cost of everything from inbound trucking and warehousing to final delivery and returns. There is also the need to consider how decisions are made in other functional areas. Once a company determines which parts of the distribution makes sense from a cost and performance standpoint to manage inhouse and which parts an outsider could handle better. After a company determines its logistics requirements it must then look for the provider capable of delivering the requirements. This process may be some what complicated- most logistics providers have a speciality - warehousing information management, custom brokering etc. Few are experts in all fields and companies may have to work with multiple logistics providers each handling a different part of the logistics process. But the basic idea is to look for logistics providers who focus on your industry and who can understand the nature of the products you deal with. What about the small and medium sized companies, how can they get the services of top logistics providers? There are some top logistics companies who have set up programmes to provide solutions to smaller customers but the services may not be as customised as for larger customers. In selecting a logistics provider, companies should pay attention to the areas of financial strength, business experiences, business developments, support services and business arrangements. The idea is to find a logistics provider who is capable of developing a comfortable working relationship. One that will grow with the needs of your company. Once you have found a provider you must work out the goals and costs of the outsourcing project and make a time table to accomplish these goals. Then a contract should be signed. It is advisable to use an open- book cost plus approach when setting the payment terms of the contract so that the shipper and third party provider agree on some overall budget for the year. More and more outsourcing agreements include gain sharing options where a provider can claim all or portion of the savings reaped for a customer above the targets set out in the initial contract. Outsourcing logistics is a long and complicated process that involves the correct logistics need to be selected and contracts need to be negotiated. But the final impact on a company's bottom line will ensure your company towards continuous success. |
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