Outsourcing logistics functions

Roger OakdenLogistics Management

Competencies can change.

I am interested that Amazon has recently purchased the supplier of Automated Guided Vehicles (AGV) used in its warehouses. This is an example of vertical integration within a business. When Amazon started, it was portrayed as the ‘new’ style of business. The requirement was to be good at your core competency, in this case on-line book selling and outsource all other functions.

However, in later years, Amazon moved to operate its own fulfilment centres and now owns distribution centre technology. While other companies have outsourced their warehouse function, here is a company going the other way and turning it into a core competency. This illustrates that the logistics strategy of your business should remain flexible and able to respond to changing business conditions. Just because your competitors process their business in a certain way is not a reason to copy.

If outsourcing is being considered for any supply chain or logistics function in your business, the justification must be more than costs. Strategic reasons must be evaluated, such as:

  • Improved flexibility and responsiveness to demand through access to the logistics service provider (LSP) internal and external network
  • Improved asset utilisation based on the financial arrangement with the LSP
  • Risks are transferred to the LSP

This implies that outsourcing proposals should be rigorously evaluated, in the same way as other major procurement contracts. The process commences with the user or proposer justifying the need. As seen from the Amazon example, this step requires a lot of thought.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...