Logistics outsourcing

By definition, outsourcing should relieve an organization of delegated tasks that are less important to the enterprise, allowing it to focus on its strategic areas and the realization of the company’s mission. Cooperation between partners (i.e., the client and the outsourcing service provider) should be long-term; both parties must derive specific benefits from this collaboration. It can be said that outsourcing is a type of strategic partnership, where the cooperation should last at least several years. The use of outsourcing is dictated by the uneconomical nature of maintaining certain departments within enterprises. Many companies in highly developed countries have implemented outsourcing to such a level that their role has been narrowed down to branding a product entirely manufactured outside the company – that is, by subcontractors (external entities). We first encountered the beginnings of this approach in the United States in the 1970s, when the first outsourcing tasks were commissioned in areas mainly concerning technical fields, which were characterized by a high level of change costs. Currently, it is estimated that about 60% of American companies derive benefits in the form of added value obtained from cooperation based on outsourcing relationships.

The Shreeveport agency from London conducted research among 500 large enterprises and institutions in England, which showed that the most frequently outsourced areas of activity are, in order:

• IT services,
• finance and administration,
• specialized services,
• logistics,
• property management,
• building maintenance.

The Outsourcing Institute has identified the 10 most important reasons for using outsourcing by companies, which ensure the achievement of the following goals:
1. Reduction and control of operating costs,
2. Increased focus of the company on core business,
3. Access to world-class capabilities,
4. Freeing up internal resources for other purposes,
5. Access to resources not available within the enterprise,
6. Accelerating the benefits of restructuring,
7. Dealing with a function that is difficult to perform or impossible to control,
8. Capital acquisition,
9. Risk sharing,
10. Cash inflow.

Risks associated with outsourcing
It should be emphasized that outsourcing is based on the principles of close partnership, which is why trust plays a very important role here. After all, the service provider takes responsibility for the proper functioning of the delegated areas of the company’s activity, and in the case of full outsourcing – for the overall functioning. It should also be added that such cooperation requires the correct definition of requirements, as well as the determination of a common vision of cooperation by both parties. Only the proper fulfillment of these conditions can lead to long-term cooperation that turns into a strategic partnership. In the article Status and prospects of outsourcing, the author lists the possibility of certain risk groups occurring, including:

1. Increase in operating costs instead of expected savings (caused, for example, by faulty recording and accounting of supplier costs, which may lead to their overstatement),
2. Opportunistic attitude of the outsourcing contractor manifested in low activity and commitment. This leads to insufficient quality of products and services, underinvestment, neglect in staff training, etc.
3. Demotivation and disorientation of one’s own staff, resulting from fears of job cuts,
4. Loss of know-how and uncontrolled outflow of information from the company along with laid-off employees and functions transferred to external contractors,
5. Failure to recognize one’s key competencies and their erroneous transfer to external service providers,
6. Loss of the existing quality level as a result of the prevailing tendency among outsourcing providers to standardize services,
7. Dependence on the client. In the case of commissioning tasks that can also be entrusted to other contractors, there is little risk. However, when complex tasks are commissioned to a company that has a position close to a monopoly, there is a real threat of dependence.

The article comes from the magazine “Logistyka” 6/2008.