Among the logistics services involved in the supply chain, distribution is the most outsourced by companies.
This information comes from the Road Transportation Department of Spain’s Ministry of Development; it reports 71% companies outsource their delivery services, followed by short-distance (less than 100 miles) freight with 16%.
A similar trend happens in emerging economies such as Mexico’s as a result of foreign companies building manufacturing plants in the country and sending their products or finished parts to the countries of origin involving customs procedures or, at least, other domestic companies with distribution centers in other states.
This shift in Mexico’s financial and trade landscapes, including factors such as the volatility of the currency exchange markets, the intrusion of new communication technologies, and the improvement to means of transport has set a trend where companies are moving towards outsourcing processes where they lack efficiency, and which contribute little differentiation.
Delegating these processes allows companies to focus on their mission and business core so they can achieve better results, listen to and satisfy their clients, and increase their competitiveness in their industries through cost reduction, which is a priority for the purchasing director of any company.
Advantages of outsourcing
Companies who aim to grow and broaden their markets get into partnerships with suppliers of logistics services that contribute great advantages, such as:
- Avoiding decapitalization from building new storage and distribution facilities in new markets.
- Lowering risks by having a supplier with experience dealing with customs and bureaucratic procedures.
- Minimizing transport, storage, and distribution costs by turning fixed costs into variable costs and taking advantage of the supplier’s economies of scale.
- Improving the quality of customer service by optimizing delivery times.
- Increasing productivity by expediting the storage and distribution processes.
- Focusing efforts on the business strategic goals, avoiding the distraction of carrying out operations outside the company’s core business.
- Accessing state-of-the-art technology applied to logistics that allows a better monitoring of shipments and the continuous operation of the supply chain.
- Lowering the environmental impact of logistics operations thanks to the supplier’s experience and best practices in this regard.
How to choose the best proposal
It is almost a natural conclusion for a purchasing director, supported by the production department, to choose this model when understanding the benefits of hiring outsourced logistics services and by following these steps:
- Analyze the real needs of the company, or the results, and how these can be improved by having your own distribution department; after this, come up with a list of goals to guide you in your search for a supplier.
- List the company’s technical and operational requirements in detail so you can request proposals from different logistics companies.
- Assess the suppliers’ proposals to find out which offer the greater advantages and the lower costs.
- Write up a contract with the supplier specifying the services to be rendered, the fees’ schedule for each of these services, the way in which unforeseen circumstances will be solved, and the key performance indicators to measure and assess results.
- Together, define which technology and information system will allow the company to supervise and monitor the operations of the supplier.
Assessment of the logistics service efficiency
Companies aim to manufacture, produce, or develop services to meet the needs and interests of clients at a competitive price and with a reasonable margin of time; therefore, they need a strategic partner who protects their strategic goals and supports them during the last stage of the supply chain to offer the best possible service.
To make sure the supplier you choose is doing its share of the work, we need to measure its efficiency.
First, we need to check if the proposed solutions are meeting the needs of the distribution department and the overall goals of the company. Specifically, the company needs to know for certain if the supplier is doing things in the right manner.
In broad strokes, you can determine this level of efficiency based on the behavior of the level of service of the logistics supplier with the client; you can analyze it from different points of view.
The level of service offered by the supplier based on its technological, financial, and organizational capacities.
The level of service provided by the supplier, or what the supplier is actually delivering to your company in terms of behavior or attitude.
The level of service perceived, in other words, what the company wants to receive from the logistics supplier.
After finding out if the offered services are being carried out according to the expected indicators, the service provided, and the best perception of results, the best outcome would be to have a concordance among these levels of service so the company can give a passing grade to its logistics supplier.
If there is any major discrepancy among these levels, it would be a good time to review the contract’s terms, the resources committed, and the goals, so you can carry out corrective actions throughout the whole logistics management system (company – supplier).
Outsourcing the logistics services should be a solution to free the company to focus on its core business, not a source of conflict.
Solistica has accumulated knowledge and experience over 30 years in the transport, storage, distribution, multimodal solutions, international logistics, and fleet maintenance services, contributing value to the supply chain for companies in diverse industries, using advanced technologies to offer comprehensive logistics solutions custom-made to its clients’ needs.
If you are looking for a logistics partner to optimize your supply chain and looking to improve your customer service and boost your company’s competitiveness, please call one of our specialists, we’ll be happy to offer our best assistance.