Time to swing for the fences?

By Mitchell E MacDonald -- Logistics Management, 8/1/1998

Recent evidence suggests that outsourcing only a portion of your company's logistics operation to a third-party provider is akin to hitting a single when a little more effort could mean a home run. A host of studies and reports dating back to last fall point to one clear conclusion--the real bang for your outsourcing buck comes when you outsource the entire function.

The most conclusive of these reports comes from the University of Maryland's Best Practices Group. Its most recent research indicates that not only are the overall savings and efficiencies greater when you outsource the entire function (as much as 21 percent in the first year), but as you increase the amount of business you outsource, the savings grow at an even greater rate.

Several companies have learned of these advantages first hand. The Maryland study projects that as many as one-tenth of all major companies now outsource their entire logistics operations. Typically, these companies report cost reduction of over 20 percent in the first year and additional savings of more than 15 percent in each of the subsequent three years. And these savings are achieved with no sacrifice of quality, reliability, or customer-service levels.

In the decade or so that has passed since we first began covering logistics outsourcing, it's become increasingly clear that use of outsourcing would grow, even soar. It now seems a breakthrough may well be around the corner. That's because cost savings remain the holy grail of shipping. Although factors such as reliability, efficiency, and quality are more important to users of logistics services now than ever before, anyone who believes cost savings aren't the primary, driving factor in logistics decision-making is living a lie. As evidence mounts that outsourcing does indeed offer a huge cost-saving potential, it's hard to imagine that outsourcing won't win over more converts.

Fortunately for those who have not taken the plunge, there is a major benefit to having waited to dive into the outsourcing pool. It is the ability to learn from the experiences of logistics pioneers who preceded you. You don't have to look far (check our magazine archive at logisticsmgmt.com, for instance) to find stories of what went right and what went wrong over the last 10 years as scores of companies gave outsourcing a whirl.

Perhaps the most important lesson learned has been the need to have a top-flight team of logistics pros working internally to monitor your company's relationship with its third-party vendors. The Maryland study found that the companies that have had the most fruitful total outsourcing experiences have been those that maintain an internal core management team to oversee the relationship with their third-party provider (or providers).

So, with plenty of experience available to help guide the way and with incontrovertible evidence that a properly executed outsourcing strategy can save big bucks without sacrificing quality and customer service, the question becomes simple--What are you waiting for?

It seems clear that when it comes to outsourcing, a check swing will get you on base, but it's not until you swing for the fences that you will put yourself and your company in position for an outsourcing home run.