There is a relatively new buzz word in the business community these days called Business Process Outsourcing or BPO. Usually this involves permanently or temporarily hiring a group of talented professionals with functional backgrounds in several areas of business including but not limited to finance/accounting, human resources, procurement, and IT/software.
Logistics Processing Outsourcing or what I’d like to call LPO should be one of those key outsourced business areas. The growth in the depth of knowledge required to properly manage the supply chain has risen far beyond the levels of training that many companies can devote both the time and resources to. While outsourcing of traditional supply chain functions has been around for decades, the proper management of these functions has not been truly envisioned in a broad sense.
If you’ve made a decision to outsource to a Third Party provider for warehousing, private fleet, or transportation then you need to ensure that you are “ringing” out all process savings.
If for example you have a private fleet managed by a third party then who is micro-managing the effectiveness of the routes or the delivery performance? Do you just pay the hourly or weekly rate or are you both (third party provider and customer) trying to drive out costs? This is where LPO services can come in to play.
Freight Bill Payment
Another example of opportunity is in freight bill processing and payment. If you currently outsource your freight payables then you must be sure that you are getting value for this service, including useful data that will help with the management of your shipments. Shopping rates is not freight management and offering to reduce your costs on this basis cannot be deemed “logistics consulting”. Anyone who provides services in this area must get intimate with your firm’s or department’s processes in order to truly drive out costs. Does your freight bill audit company make money off the carriers they recommend? If they do ask them why this money isn’t in your pockets.
When was the last time someone offering to reduce your freight costs actually toured your facilities, looked at your products, and/or reviewed their pick up and delivery requirements? It’s easy to see that you might pay more than someone else on a 2300-lb shipment from Winnipeg to Melville but could this be due to the nature of the product, its value, susceptibility to damage or some other factor? LPO can review this to ensure you understand the trade offs and help with the reduction in overall costs.
If the decision to outsource some or all of your warehousing requirements is necessary then you should be confident that you are addressing all matters necessary to reduce the impact of your outsourcing (including but not limited to unitized loads, inventory management, product labelling and identification). Do you understand “turns” and what impact this has on the cost of warehousing? Do your loads arrive at the warehouse properly sorted, with the proper bar and ID codes? Are they uniformly palletized such that cycle counting can be conducted in an efficient manner? Do you know how to manage this?
Is someone managing the 3PL warehouse provider or does someone just look over the bill and ensure you pay the right amount? If so, you might be a candidate for LPO. Many 3PL providers offer “gain sharing” whereby both provider and customer share in any cost reduction opportunities or performance goals being attained. If you are considering this then you need to be able to set realistic goals and performance measurements.
International Freight Management
There is an enormous amount of international commerce these days. The expertise needed to understand the complexities of freight management in this arena is often the reason many turn to freight forwarders. What separates one from the other might be their ability to work to reduce landed costs or their ability to integrate their communications with yours providing more timely information. A company that is able to plan their shipment processes better could improve their costs and service ability.
Are you doing what you can to ensure that your freight is moving properly over the border? Are all border initiatives such as participation in C-TPAT, PIP, and CSA/FAST not worth exploring to improve the process of product movement and to reduce your costs of shipping? An LPO in this area should involve selecting someone who understands the supply chain entirely and not just customs brokerage or in-house security.
LPO – Are you a candidate?
If you are shopping for LPO support then ensure that the company you source is working on your behalf and clearly states that they are not receiving offerings from freight, warehouse or software/hardware providers as it relates to managing the logistics of your business.
Keep tabs on the outsourcing you are doing not by just paying the bills but by managing the process. If you require assistance then look for someone who properly understands what might be required to reduce your costs and improve your services. LPO can make a difference to a firm. Proper understanding of their values and capabilities will keep that a positive difference.