7 elements you should check when choosing whether to outsource your logistics

January 14, 2019

7 elements you should check when choosing whether to outsource your logistics

The decision whether or not to outsource your logistics chain should be well considered and supported by concrete facts. This post will help guide you by providing a list of elements you should check before implementing an internalization or outsourcing strategy.

  1. Analyze the current internal and external situations (SWOT and PESTEL analyses) :
    A SWOT analysis, or analysis of strengths, weaknesses, opportunities, and threats, helps bring to light internal company elements – strengths and weaknesses – as well as external elements – opportunities and threats. This analysis helps examine the company’s current situation, and it is an excellent strategic planning tool. For example, a shortage in workforce may pose a threat that could influence your decision whether to outsource your logistics.
  2. Determine key skills :
    Several authors mention that companies prefer to outsource logistics chain elements to better focus on their core business. If that is the case for your company, it may be useful to list your key skills. For example, perhaps one of your employees has expertise in road transportation. Such an asset could make outsourcing this aspect of your logistics chain optional. The company could think about an outsourcing strategy for secondary activities.
  3. Analyze the service provider’s skills, performance, and service quality levels : 
    Here are some indicators you can ask of logistics service providers to analyze the elements below:
    - Skills: facility spec sheets, list of products handled, list of certifications, description of the team that would handle your logistics, etc.
    - Performance: case studies and operational KPI
    - Quality of service: list of references
  4. Analyze human elements :
    This refers to the level of resistance to change and the examination of solutions to employee job loss that might occur should the company choose to outsource activities. It is a crucial factor to analyze as it has a major impact on the decision whether to outsource company activities.
  5. Describe and analyze material needs :
    You should closely analyze the material needs required for the logistics process: warehousing, conveyors, a truck fleet, etc. That will enable you to see whether you have the necessary equipment in-house, as well as the possible cost of implementing an internalization strategy. Lastly, it will allow you to validate whether the service provider has the proper equipment and suggests the right handling methods.
  6. Analyze financial considerations :
    The financial analysis should reflect savings and cost reductions. It is therefore relevant to determine a set savings percentage (for an equivalent level of service). For example, choose to outsource if savings are greater than 10%, and stay in-house if less than 10%.
  7. Compare different scenarios :
    Every conceivable future situation should be written out, prepared, and analyzed by a single person, to make sure you are working with reliable, comparable data. Ideally, once you have every element in hand, have a group discussion to guide your choice: “Meetings with expert panels or personnel from various departments are the main method of judging and choosing.”

*Post inspired by Delphine Adam’s thesis, La décision d’impartition des activités logistiques dans les entreprises au Québec. This blog post does not reflect the opinions of the author, but certain elements of her thesis.