REASONS WHY OUTSOURCE YOUR LOGISTICS

Outsourcing your logistics is a common practice that has many advantages but can also induce certain risks. In this article, let's find out everything you need to know about the subject.

Outsourced logistics: definition

Outsourcing its logistics corresponds to the decision of a company to entrust part or all of its supply chain to a specialized external service provider. The latter must be able to take charge of all the physical flows ranging from inventory management, order preparation, through logistics operations, to their dispatch, but also the management of associated processes including purchasing. of consumables, monitoring of flows, deliveries, etc.

Logistics outsourcing: what are the advantages?

Focus on your core business

Bringing together its means and efforts allows the company to improve on other strategic points such as research, design, marketing and thus strengthen its competitive advantage.

Today many companies are exclusively focused on research and development. They thus transfer manufacturing to a factory and their entire Supply Chain to a logistics provider such as XP LOG.

This structural change is part of a real optimization process.

A financial reason

Outsourcing, also called outsourcing, reduces investment needs (infrastructure, such as multimodal logistics platforms), but also reduces operating costs (transport, storage, payroll).

Maintain a relationship of trust

Trust in supply chain management skills will be established. It will provide support to the company that uses it and allow it to exploit skills that it would not have been able to develop itself.

Working with specialists remains above all a guarantee of quality and responsiveness.

External logistics: what are the risks?

Beyond the number of advantages that this option provides, it also includes certain significant risks that must be controlled.

Specific risks

You should know that external logistics can create risks depending on the region or country hosting the platform. For example, there may be political risks (strike, inflation, conflict fluctuations) or environmental risks (bad weather, natural disasters) which may have an impact on the services offered to customers.

For example, in a context where transport prices increase drastically due to inflation in the price of a barrel of gasoline, the JIT (just in time) could no longer be profitable.

A goal gap

It is not uncommon to see a gap between the objective announced by the service provider's sales representative and the objective expected by the company.

It therefore seems important to provide complete specifications as well as a dashboard aimed at evaluating the services provided and customer satisfaction.

How to choose your logistics provider?

Choosing the right logistics partner is a complex trade-off for which some consideration should not be neglected. This reflection is prepared upstream and consists of three parts: the definition of needs, the definition of costs as well as the notions to anticipate.

First of all, it is necessary to define the needs of the company in order to be able to set up a first filter. They can be articulated as follows:

• The outsourcing degree (1PL, 2PL, 3PL, etc.)
• Optimal location (port area, North/South area)
• The type of product
• The need for storage space

After having defined all of these criteria, the production of specifications will make it possible to begin a prospecting process with the logistics entities. This should include:

• An estimate of the number of monthly / annual orders
• The type of order (“good to man” or “man to good”)
• The type of goods (fresh, bulk, dangerous goods, etc.)
• The type of packaging and pallet

The specifications are one of the most important steps to target your needs and thus start comparative studies with suitable partners.

The second criterion to be taken into account revolves around the definition of costs. It should be remembered that the search for a logistics provider comes with the objective of reducing costs while increasing its margin.

To do this, you must find out about the pricing policy applied by the logistics platform by approaching the sales department. So that, after obtaining prices, a comparison with the services offered will highlight the company offering the best quality / price ratio.

Finally, the last step consists in planning and anticipating certain notions. Dialogue to plan for growth possibilities to support and check whether they will have the support capacities and anticipate variations in annual volume and changes in packaging.

The question of data management is also to be taken into account. Indeed, the logistician must be able to provide inventory data in real time, and to be able to provide management tools such as KPIs or indicators that allow the company to optimize all processes.

What degree of outsourcing to choose?

There are several degrees of outsourcing which result in several categories of service provider, each offering different services.

• 1PLs are for companies that send their products from one place to another.
• 2PLs are companies that own a fleet of vehicles to sell transport services.
• 3PLs are logistics and transport service providers such as XP LOG.
• The 4/5PL bring together all the activities of the supply chain with the particularity of providing innovative solutions such as EDI, or robotization.
• Therefore, in the context of outsourcing, it will be necessary to move towards companies of the type: 3PL / 4PL / 5PL.

For more information, discover another article available on our blog: How to choose your logistics provider?

Achieve economies of scale through outsourcing

Outsourcing makes it possible to achieve economies of scale if the approach is carried out in a methodical manner. Therefore, it is interesting to determine a strategic location that would be optimal for supplying all the points of sale.

To choose a logistics warehouse whose location would become a competitive advantage, the Barycentre method can be used.

Barycentre method:

• Calculate the distance between the logistics platform and each delivery point (km)
• Determine the quantity to be delivered for each delivery point (tonne)
• Perform the ton x kilometer calculation

Thus the platform whose sum will be minimal represents the strategic place where outsourcing will be the most profitable.

To conclude,

Outsourcing is a real tool for competitiveness, flexibility and responsiveness for companies. It is a market that continues to innovate and grow with the times and its socio-economic fluctuations. So despite the risks associated with the logistics activity, reflection is necessary for any company wishing to benefit from a competitive advantage and expansion on the French, European or even global markets.