Logistics Outsourcing – A Leopard Can Change Its Spots

For many senior executives, it used to be the case that a discussion on logistics was a discussion about a delivery route or a warehouse at the back of their site.

These days however, logistics is a complex and continuously evolving element of an organisation’s business strategy, requiring the dedication of an increasing share of its focus, time and resources.

The increased complexity and sophistication of contemporary supply chains have required a significant investment in both human and financial capital to keep pace with technological change and innovation. Whether driven by fear of this complexity, a desire to reduce costs, focus on core competencies, divesting of assets or any number of other variables, companies have for many years been choosing to outsource their logistics requirements to
external logistics professionals.

This move by manufacturers and distributors is in line with similar outsourcing strategies employed in other areas of their operations where they have acknowledged that they lack the expertise, resources or demand to justify the provision of the functions internally.

The traditional path to outsourcing has been to devolve responsibility for the performance of these tasks via contract to a third party. But can third party providers, particularly those who are asset based (which is very much the Australian experience), meet the increasingly complex demands of supply chain integration and integrated logistics management? Our contention is that in their present form they cannot.

Many companies that have outsourced all or part of their logistics chain are even considering pulling the capability back in-house, as they are failing to realise the value they were promised when they first approached outsourcing initiatives in the mid to late 1990s. The failure of these relationships should not be attributed to the failure of outsourcing as a concept, but rather to the manner in which outsourcing has been approached.