Logistics Outsourcing & its Effects On Stakeholders

What is Logistics?

Logistics is the management of the flow of goods and services between the point of
origin and the point of consumption in order to meet the requirements of customers.
Logistics involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging, and occasionally security. Logistics
is a channel of the supply chain which adds the value of time and place utility. Today
the complexity of production logistics can be modeled, analyzed, visualized and
optimized by plant simulation software.

Logistics as a business concept evolved in the 1950s due to the increasing complexity
of supplying businesses with materials and shipping out products in an increasingly
globalized supply chain, leading to a call for experts called supply chain logisticians.
Business logistics can be defined as "having the right item in the right quantity at the
right time at the right place for the right price in the right condition to the right
customer", and is the science of process and incorporates all industry sectors. The
goal of logistics work is to manage the fruition of project life cycles, supply chains
and resultant efficiencies.

In business, logistics may have either internal focus (inbound logistics), or external
focus (outbound logistics) covering the flow and storage of materials from point of
origin to point of consumption (see supply chain management). The main functions of
a qualified logistician include inventory management, purchasing, transportation,
warehousing, consultation and the organizing and planning of these activities.
Logisticians combine a professional knowledge of each of these functions to
coordinate resources in an organization. There are two fundamentally different forms
of logistics: one optimizes a steady flow of material through a network of transport
links and storage nodes; the other coordinates a sequence of resources to carry out
some project.

Production logistics

The term production logistics is used to describe logistic processes within an industry.
The purpose of production logistics is to ensure that each machine and workstation is
being fed with the right product in the right quantity and quality at the right time. The
concern is not the transportation itself, but to streamline and control the flow through
value-adding processes and eliminate non–value-adding ones. Production logistics
can be applied to existing as well as new plants. Manufacturing in an existing plant is
a constantly changing process. Machines are exchanged and new ones added, which
gives the opportunity to improve the production logistics system accordingly.
Production logistics provides the means to achieve customer response and capital
efficiency.

Production logistics is becoming more important with decreasing batch sizes. In many
industries (e.g. mobile phones), a batch size of one is the short-term aim, allowing
even a single customer's demand to be fulfilled efficiently. Track and tracing, which is
an essential part of production logistics—due to product safety and product reliability
issues—is also gaining importance, especially in the automotive and medical
industries.

Logistics management

Main article: Logistics Management

Logistics management is that part of the supply chain which plans, implements and
controls the efficient, effective forward and reverse flow and storage of goods,
services and related information between the point of origin and the point of
consumption in order to meet customer and legal requirements. A professional
working in the field of logistics management is called a logistician.

Logistics management is known by many names, the most common are as follows :

• Materials Management
• Channel Management
• Distribution (or Physical Distribution)
• Business or Logistics Management or
• Supply Chain Management

The Chartered Institute of Logistics & Transport (CILT) was established in the United
Kingdom in 1919 and was granted a Royal Charter in 1926. The Chartered Institute is
one of the professional bodies or institutions, for the logistics and transport sectors,
that offers professional qualifications or degrees in logistics management.

Warehouse management systems and warehouse control systems

Main articles: Warehouse management system and Warehouse control system

Although there is some functionality overlap, the differences between warehouse

management systems (WMS) and warehouse control systems (WCS) can be
significant. Simply put, a WMS plans a weekly activity forecast based on such factors
as statistics and trends, whereas a WCS acts like a floor supervisor, working in real
time to get the job done by the most effective means. For instance, a WMS can tell the
system it is going to need five of stock-keeping unit (SKU) A and five of SKU B
hours in advance, but by the time it acts, other considerations may have come into
play or there could be a logjam on a conveyor. A WCS can prevent that problem by
working in real time and adapting to the situation by making a last-minute decision
based on current activity and operational status. Working synergistically, WMS and
WCS can resolve these issues and maximize efficiency for companies that rely on the
effective operation of their warehouse or distribution center.[2]
Logistics outsourcing
Third-party logistics

Main article: Third-party logistics

Third-party logistics (3PL) involves using external organizations to execute logistics

activities that have traditionally been performed within an organization itself.[3]
According to this definition, third-party logistics includes any form of outsourcing of
logistics activities previously performed in-house. If, for example, a company with its
own warehousing facilities decides to employ external transportation, this would be
an example of third-party logistics. Logistics is an emerging business area in many
countries.

Fourth-party logistics

Main article: Fourth-party logistics

The concept of Fourth-Party Logistics (4PL) provider was first defined by Andersen
Consulting (Now Accenture) as an integrator that assembles the resources,
capabilities and technology of its own organization and other organizations to design,
build, and run comprehensive supply chain solutions. Whereas a third party logistics
(3PL) service provider targets a function, a 4PL targets management of the entire
process. Some have described a 4PL as a general contractor who manages other 3PLs,
truckers, forwarders, custom house agents, and others, essentially taking
responsibility of a complete process for the customer.

Reverse logistics

Reverse logistics is defined as a process of moving goods from their place of use,
back to their place of manufacture for processing, refilling, repairs, or waste disposal.

It stands for all operations related to the reuse of products and materials. It is "the
process of planning, implementing, and controlling the efficient, cost effective flow of
raw materials, in-process inventory, finished goods and related information from the
point of consumption to the point of origin for the purpose of recapturing value or
proper disposal

Retailers,
Manufactur Distributors, Consumer
er Warehousing
etc

Material Sold
Materials Return
What is the process of outsourcing and what are the benefits of an organization
gets by outsourcing their logistical functions .

Outsourcing is defined as the contracting of one or more of a company’s business

processes to an outside service provider to help increase shareholder value, by
primarily reducing operating cost and focusing on core competencies. CIO defines
outsourcing as an arrangement in which one company provides services for another
company that could also be or usually have been provided in-house.

Outsourcing is the contracting out of a company’s non-core, non-revenue-producing

activities to specialists.

It differs from contracting in that outsourcing is a strategic management tool that

involves the restructuring of an organization around what it does best—its core
competencies.

Company
Outsourcing
Some of the Logistical
Functions to 3rd party Service Providers

Information Flow

Procurement Warehousing Inventory

Management

3 rd Party Logistics Service Providers

Benefits of Outsourcing are as below:

1. Reduce costs: Outsourced company will have expertise in handling the activities
which is outsourced to them also they combine work for various other companies as
well hence the overall costs reduces.

2. Focus on core functions: By outsourcing the various activities company can focus
on its core strength. Ex: Paint manufacturing company will out source the distribution
and will use the resources on its core strength i.e making, developing various types of
paints.

3. Acguire new skills: A company may find that its in-house skill set is inadequate
for a given function. This is the most common reason and is used for outsourcing
those functions that require high skill levels, such as engineering and computer
services.

4. Acquire better management: A company may find that an in-house function is

not performing as expected not because of any problem with the staff but because of
inadequate management support or capability.

5. Assist a fast growth situation: If a company is rapidly acquiring market share, the
management team will be stretched to its limit, building the company up so that it can
handle the vastly increased volume of business. In such situations, the management
team will desperately need additional help in running the company. A supplier can
step in and take over the function so that the management team can focus its attention
on a smaller number of core activities. For example, a company in a high growth
situation may outsource its customer support function to a supplier, who already has
the phone line “ capacity and trained staff available to handle the deluge of incoming
calls.

6. Avoid labour problems: If a company is constantly bogged down by labour

problems which start affecting its productivity and performance, outsourcing becomes
a viable option. Companies can in such cases use suppliers infrastructure, manpower
and facilities for production and concentrate on marketing or getting business.

7. Focus on strategy: A company’s managers typically spend the bulk of each day
handling the detailed operations of their functional areas—the tactical aspects of the
job. By outsourcing a function while retaining the core management team, a company
can give the tactical part of each manager’s job to supplier, which allows the
management team to spend far more time in such strategy related issues as market
positioning, new product development, acquisitions, and long-term financing issues.

8. Avoid major investments: A company may find that it has a function that is not as
efficient as it could be, due to lack of investment in the function. If the company
keeps the function in-house, it will eventually have to make a major investment in the
function in order to modernize it. Outsourcing this function can avoid any major
investments. For example, by outsourcing transportation activity, the company that
owns an ageing transportation fleet can sell the fleet to a supplier, who then can
provide an upgraded fleet to the company as part of its service.

9. Handle overflow situations: A company may find that there are times of the day
or year when a function is overloaded for reasons that are beyond its control. In these
situations it may be cost effective to retain a supplier to whom the excess work will be
given.

10. Improve flexibility: This is similar to using outsourcing to handle overflow

situations, except that the supplier gets the entire function, not just the overflow
business. When a function experiences extremely large swings in the volume of work
it handles, it may be easier to eliminate the fixed cost of an internal staff and move the
function to a supplier who will only be paid for the actual work done. This converts a
fixed cost into variable cost—the price of the supplier’s services will fluctuate directly
with the transaction volume it handles.
12. Enhance credibility: A small company can use outsourcing as a marketing tool.
It can tell potential customers the names of its suppliers, implying that since its
functions are being maintained by such well-known suppliers, the company’s
customers can be assured of a high degree of quality service. In these instances, the
company will want to hire the best known suppliers, since it wants to draw off of their
prestige. Also, for key functions, the company may even want to team up “with a
supplier to make joint presentations to company customers, since having the suppliers
staff present gives the company additional credibility.

13. Maintain old functions: A company may find that its in-house staff is unable to
maintain its existing functions, while transitioning to new technology or to a new
location. Outsourcing is a good solution here, for it allows the company to focus its
efforts on implementing new initiatives while the supplier maintains existing day-to-
day functions. This reason is most common in computer services, where suppliers are
hired to maintain old ‘legacy’ systems while the in-house staff works on transitions to
an entirely new computer system.

14. Improve performance: A company may find that it has a function that has
bloated costs or inadequate performance. To shake up the function, company
management can put the function out to bid and include the internal function’s staff in
the bidding process. The internal staff can then submit a bid alongside outside
suppliers that commits it to specific service levels and costs. If the bid proves to be
competitive, management can keep the function in-house, but hold the functions staff
to the specific cost and performance levels noted in its bid. As long as suppliers are
told upfront that the internal staff will be bidding and that the selection will be a fair
process, they should not have a problem with this type of competition. This approach
can be used for any functional area.
 Logistics Outsourcing & its Effects On
Stakeholders(Consumer Survey)

Questionnaire Analysis of 100 Samples

Q1.How often do you consume processed food?

60

50

40

30

20

10

0
Weekly Monthly Quaterly Yearly
Q2.Which type of processed food do you prefer to consume?

Vegetables

16% Fruits
26%

Dairy Prod
12%
Juices
12%
Chicken
24% 6%
4%
Fish

Meat
 Q3.How often do you consume processed food?

50
45
40
35
30
25
20
15
10
5
0
Kirana Super Others
Store Market

Q4.Which Brands do you use?

100%
6 6 5 4 Vegetables
80% 4 5 3 4
Fruits
6 5 7 6 Dairy Prod
60%
5 5
5 6 Juices
40% 6 6
5 4 Chicken
20% 6 6 3
4 Fish
Meat
0%
Avalibility Price
 Logistics Outsourcing & its Effects On Stakeholders
(Manufacturer's Survey)

Q1. What is your job position?

40
35
30
25
20
15
10
5
0
Logistics Production Others
Manager Manager

Q2. In your company,at what level the decision of logistics

outsourcing is taken?

60
50
40
30
20
10
0
One Factory Level Multi-factories
Level
Q3. To what degree, are you involved in decision making of logistics
outsourcing?

40
35
30
25
20
15
10
5
0
Highly Little Bit

Q4. How many full-time employees are there at your company?

30
25
20
15
10
5
0
Less 51- 151-
Than 100 200
40