LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

OUTSOURCING INTERNATIONAL LOGISTICS

World Wide Shipping
May 2002

Outsourcing is done for many reasons. For example-

*A company will not or cannot commit the necessary resources, people, budget and/or capital to that function to properly do it.
*A company does not understand the function and its impact on its business, so it sees nominal value to doing it internally.
*The person responsible for a function is too busy with other responsibilities to devote the proper time and attention to it.
*The person responsible for a function does not enjoy doing that function and what it entails.
*A company wants to reduce its cost or improve its capabilities and feels that internal resources are not capable of meeting the challenge.

International logistics is often outsourced for each of the reasons shown above. International is different from domestic. Incoterms, letters of credit, the distances and business cultures all mean that you should be careful in trying to outsource your international logistics function.

Whatever the reason, to redefine the process or to just not do it in-house, whether it is part of a corporate strategy or an overreaction, certain things must be done for successful outsourcing. These include:

*Understand and define your processes, needs and requirements. You must be able to clearly define and measure the process and service you are outsourcing, what it involves, how it is done, why it is done that way and more. What do your customers demand of your international logistics service? What do you expect from your logistics service?

You want a service tailored to meet your specific needs. So you must be able to detail your process and your expectations. If you cannot do this, then how can a firm make a proper and complete proposal to meet your needs? How else can you protect your interests if you cannot define them? How can you expect to know if the outsourced alternative is better for you than what you are doing now? And, you cannot let the potential outsource service providers define your requirements. That leaves you vulnerable to someone and something that you do not want and cannot control.

*Know your total and true costs for international logistics. Financial numbers, costs, will be the first criteria for your outsourcing decision. Know them. It is not just freight and customs related costs. There are your costs of doing it, of doing it right and of not doing it right or for mistakes of mistakes when things do not go as planned. Know these. International logistics is a long distance, longer time activity and interval than is domestic. What is the impact on inventory, both in transit and on-hand? What does it do to your lead times? Miss a sailing and you may have to wait a week. Have the airfreight shipment arrive a day late and you may lose the weekend and more awaiting customs clearance and delivery; and, as a result, you have lost some of the advantage for airfreight.

*Define who will manage the outsourced activity. You cannot abdicate responsibility for the activity. You may choose to have someone outside your company do it. But you must retain responsibility for the process and results. Your customers do not care who you use and how you do it. They only care that it is done properly. You must specify the internal responsibility and accountability.

*Carefully choose the international logistics service providers you want to talk with. There may nothing more frustrating than spending months developing and negotiating a project than to have it end in a "no decision" because no one can meet your needs. Whether you want global capabilities, a personal touch, information technology, or other, then you must seek companies that have the potential to meet your demands. Where and how do you want value from your logistics provider? This, in turn, will help you decide whether you want to discuss your needs with a freight forwarder or NVO or with a 3PL. Also, the company that may be good for your China shipments may not be as good for your Brazil shipments.

Recognize that a 3PL should be able to provide two or more logistics capabilities to be a 3PL. Also, you should drill into how independent the 3PL will be with your business. 3PL firms developed to bring business to the parent company. That is fine. But they need to have some discretion to meet your dynamic needs. If not, they are providing a commodity service only and price is your only selection criteria then.

*Make sure the service providers under consideration understand your requirements. Even within an industry or logistics function, everyone does not do things the same way. Each company, for various reasons, has their own way of doing things. Where are you now and where do you want to go with outsourcing your international logistics?
Therefore, the corollary to defining your needs is to make sure the logistics service providers clearly understand your needs and are not ignoring it. Large suppliers often have much knowledge and capability. However with all that skill, they may not listen to and understand what you want. They assume that what they offer is what you need.

*Define metrics/measurements, accountabilities and responsibilities to know if the outsourced service provider is performing as required. This also means agreeing to how the metrics are developed, the source of information used and the review process that will be used, including the time schedules. If these are not done, then the parties cannot agree if the provider is doing the job as expected. Do not depend upon the contract to make the outsourced process work. And without clear metrics, the parties will not be able to cooperate to make improvements. Basically the process will stall.

*Agree on who will be the key contact for your outsource partner. Watch that the sales person you are dealing with may not be the person responsible for your work. Despite all good efforts, there can be a disconnect with your outsource company. Does the person who is going to do the work understand you and your needs? It is not enough that the sales person did. You should meet that person, make sure he understands your requirements and that you can work with him. He is the gatekeeper to your satisfaction.

*Define the implementation plan and schedule. Once you have selected a service provider, how do you want to transfer the work? It should be in defined increments to help everyone transition and ramp up understanding. Do not rush it just for the sake of getting it out of your company. Remember also, that even with the best plan, there will likely be startup glitches. Anticipate.

Good luck with your international logistics outsourcing project. There is much to consider. Your effort is both analytical and subjective. Do not take shortcuts in doing it; they may come back to haunt you.