Outsourcing

Outsourcing your logistics services 

The term outsourcing is composed of the words outside, resource, and using. In an entrepreneurial context, this refers to the award of services that were previously provided within the company by its own means of production outward to external third parties. The goal: When a third part provider concentrates on its core competencies, such as production, and flanking activities, the process efficiency of your company's logistics increase. 

Outsourcing has become increasingly important in recent decades. Depending a logistics provider's scope of services, different approaches can be distinguished. While the standard manufacturing company still largely realizes its own logistics in a 1PL approach (First Party Logistics Service Provider), an external service provider provides a 2PL (Second Party Logistics Service Provider) approach with transport, handling, or storage services. In a 3PL approach, the service provider supports its customers with services that go beyond traditional logistics activities - also known as value-added services. A 3PL provider takes assembly, quality control, packaging, continuous optimization measures, etc. This form of cooperation usually leads to long-term partnerships, the manufacturing company reduces its own logistics infrastructure, and the logistics service provider is deeply involved in processes and data flows. In a 4PL approach, the service provider also acts as a system integrator between the manufacturer and other logistics providers with the aim of improving coordination and organization of all business processes along the value chain. A 4PL provider takes on the optimization, integration, and control of the logistics chain and thus, the selection and commissioning of the required service providers. 

Müller – Die lila Logistik has been implementing logistics services for its customers for three decades: from warehouse management and value-added services to the integration and optimization of holistic supply chain processes. We know exactly what opportunities lie within an outsourcing project:

Opportunities from outsourcing

• A focus on your core competencies:
  If you source services that are not your core competencies, you can concentrate on your core business, bring it forward, and perfect it. The service provider is an expert in his area of responsibility and can supportively adapt his processes to your core activities in order to increase overall productivity. This way, both parties benefit. 

• Cost reduction:
  The use of synergies and their collective bargaining agreements allow the service provider to save staff and costs. The savings benefit your investors, customers, and you in the further development of your core business. In addition, the required employees are recruited, qualified, and developed directly by the service provider. In times where there is a shortage of skilled workers, this is not to be underestimated.

• Cost flexibility:
  Similar to a pay-per-use business model, you only have to pay for the services that you really need. A provider's service costs are variable. In the event of order fluctuations, high costs are a thing of the past, despite low capacity utilization. Thanks to flexible working hour regulations in their industry, the logistics service provider can quickly react to fluctuations in workforce policy. 

• Transferring know-how and gains from transparency:
  The logistics service provider is an expert in his field and usually complies with outsourced logistics tasks more efficiently. You benefit from their expert knowledge (perhaps through regular meetings), and might even be able to use their ideas in other processes. In addition, remuneration and liability regulations in collaboration with external service providers require a clear definition of performance. As a result, business processes become more transparent and cost sources and optimization potentials more easily recognizable. 

To make your project a success, Lila Logistik supports you throughout the entire outsourcing project. The starting point is always our specially designed Make-or-Buy Analysis to evaluate whether outsourcing processes to an external service provider is profitable at all. Below, we have put together five tips from previous projects to help you successfully implement outsourcing into your operative business. 

Five tips from practice for practice:

• Select your service provider with care.
  Don't put your eggs in the wrong basket. The cheapest service provider does not always provide the most cost-effective solution. Damage caused by the employment of unqualified employees can actually exceed cost savings. We inform ourselves about potential suppliers and compile a list of bidders with detailed tender documents. Only after we've evaluated the offers on the basis of predefined criteria do we prioritize the possible service providers and also support our customers personally. Don't just look at their numbers but also their references and project experience. Afterwards, you can make your choice in good conscience and begin contract negotiations. 

• Define contract definitions.
  The contract should discuss your expectations of the service provider, specify the scope of services, and regulate the rights and obligations of both parties. Therefore, we support our customers in contract preparation with regard to goal-oriented performance definitions and on request, with legal advice from our external partners. If the contract covers all of these aspects, you will save time and costs if there are any operational inconsistencies. Contract premises such as the legal relationship of the contractors, the duration of the contract, and the periods of notice should also be carefully considered before the contract is issued, since they can influence the profitability of the outsourcing project. We always advise our customers with regard to the most economical scenario, tailored to their needs. 

• A successful start to your project is key. 
  Müller – Die lila Logistik ensures a smooth project start because it's a decisive point for an outsourcing project's success. After successful service provider selection, change management is required. With regard to personnel planning, employee communication, IT, operational controlling to be set up, or organization, outsourcing requires change processes within a company, which have to be implemented in coordination with the service provider. In close cooperation with our customers, we support the gradual transfer of operational tasks to the service provider. The questions that arise at the beginning of the process are best answered in the shortest possible way.  

• Create incentives. 
  Create incentives for service providers to optimize their performance. You can share project profits if they exceed agreed annual goals, such as an annual cost reduction of 3 percent of project revenue. If the savings made by the service provider are shared, both sides benefit from the agreement. In addition to monetary incentives, non-monetary incentives, such as workshops or event visits, intensify and strengthen the partnership.
  
  
• Monitor the services.
  Digital tools like our Logistik Cockpit 4.0  keep you up-to-date and enable you to quickly detect deviations from the agreed level of service or to identify areas of activity that require optimization. Together with your service provider, solutions can be developed and potentials unleashed . We'll gladly support you with an open potentials analysis. Because that's the goal: To continuously improve processes in partnership with the service provider. 

There is no universal answer to the question "Is outsourcing worthwhile?". But there are factors that support the success of a concrete outsourcing project. We'll happily talk to you about it.