Due diligence in outsourcing
Francis J. Quinn, Editorial Director -- Logistics Management, 11/1/2002
Things used to be a lot easier for logistics managers. Take the case of outsourcing. Until recently, the central question that they had to address was whether specific activities could be performed more cost effectively with internal resources or with an outside provider. So whether it was running a warehouse, operating a dedicated fleet, or auditing and paying freight bills, you could proceed on that basic question and start working toward what you hoped would be the correct answer.
Today, the outsourcing issue has taken on added complexity. No longer is it simply a matter of inside vs. outside. Instead, it's inside vs. outside—and if it is outside (which seems increasingly to be the case), would it be one or many providers? Put another way, is a "one-stop shopping" outsourcing approach right for me?
As our feature article on the one-stop shopping proposition makes clear, there is anything but unanimity on this question. Not surprisingly, the big global logistics service providers argue that a centrally managed approach to outsourcing makes sense in many situations, particularly where shippers have multiple logistics operations in different parts of the world. The one-stop shopping proponents further contend that when the costs of finding and managing multiple service providers are tallied, a bundled approach to outsourced services proves superior.
Those on the other side of the argument counter that the basic premise of one-stop shopping—that a single company can effectively manage a range of far-flung logistics activities anytime and anywhere—is faulty. The magnitude of the task is such, they say, that you need the best company for a given task in a given region—be it transportation of raw materials from a supplier, order fulfillment, local warehousing and distribution, and so forth. To borrow a phrase from the technology space, we might characterize this as the "best of breed" argument.
In the face of these conflicting viewpoints, how do logistics managers make the right choice when it comes to selecting a third-party provider or providers? The answer is that when the decision to outsource is made, they will need to become more rigorous and analytical in evaluating the options. The advantages and disadvantages of having one or many outside providers must be comprehensively examined from both the cost and the service standpoint. The analysis should even go a step further. Innovative logistics managers will want to look at a combination of outsourcing options in which a third-party provider may perform multiple activities in some cases or in some areas, and a single activity or none at all in others.
For today's logistics professionals, outsourcing brings with it a mandate for due diligence—and an opportunity for innovation.
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