Logistics Outsourcing - WarehouseA HANDY 8 STEP GUIDE

Know WHY you are Considering it

To save costs. You may not.To improve service? You might.To gain expertise? You should.To access technology? You should.Because it’s not core? Then consider it.Be Very Clear on your Objectives

1

WHAT to Outsource?

Is it Outsourceable?Does it work OK already? (Don’t try to outsource a broken process)Outsource ALL or Part?Retain some capability in house?

2

Assess the Market - Who to partner with?

Ensure they:1. Know your industry.2. Have a good track record.3. Have relevant references.4. Will value YOUR business.

3

Expression of Interest (EOI)

Test vendor interest.Assess vendor capability.Develop ‘long list’ of vendors. (5 or 6)

4

Request for Tender (RFT)

Specify task in DETAILSpecify process in DETAILUse objective evaluation criteriaAim to short list 3.

5

Evaluation

Be objectiveUse a cross functional teamMeet the vendors (presentations)Visit vendor sitesMeet vendor implementation manager!

6

Implementation Planning

Ask for plan in RFTThen jointly plan.Be realistic with timeAllow contingency

7

Contract Negotiation

High investment needs longer contract termBe open with resources, costs, marginsEnsure rate mechanism is pressure tested for rise and fall in activity

8

Your Warehouse$ / Case / pallet / order

% cube utilisation

Order picking rates

Your InventoryStock turns overall

Stock turns by ABC

Aged stock levels?

Inventory record accuracy?

Your WarehouseSlot your products

Use correct flow

Smooth workload peaks

WHAT HAPPENS IF A LOGISTICS PARTNER STOPS WORKING?On November 27, 2012, approximately 800 clerical workers at the America’s Los Angeles and Long Beach ports (representing 40% of the value of imports brought into the U.S ) went on strike, and so did 10,000 unionized dockworkers. The cost of the strike was estimated at $1 Billion per day.

1 BILLION

per dayLOSS

WHAT DO OUTSOURCED LOGISTICS PROVIDERS OFFER?

0 20 40 60 80 100

Warehouse management

Distribution management

Order fulfilment

Repackaging/relabelling

Hardware/software transport

Rail transport

Motor transport

Air transport

Ocean cargo transport

Shipment consolidation

Product returns

Inventory control

Supply chain management

RF tag tracking

Barcode tracking 62%

31%

54%

38%

54%

100%

46%

69%

69%

46%

53%

69%

69%

85%

77%

SERVICE % of providers offering different types of services

HOW DOES LOGISTICS OUTSOURCING COMPARE WITH OTHER OUTSOURCING (US FIGURES)?

0 10 20 30 40 50 60Transportation

Real estate/facilities management

Sales/marketing

Contac centres/call centres

Manufacturing

Human resources

Finance

Distribution and logistics

Administration

Information technology

9%

11%

13%

15%

18%

19%

20%

22%

47%

55%

BUSINESS AREA % outsourced

MEASURABLE BENEFITS FROM USE OF OUTSOURCED LOGISTICS SERVICES (2012)

Order Accuracy (previous rate/new rate)

Order fill rate (previous rate/new rate)

Logistics Fixed Asset Reduction

Inventory cost reduction

Logistics cost reduction

0 10 20 30 40 50 60 70 80 90 100

13%

9%

25%

70% / 79%

80% / 87%

RESULT Change

REASONS WHY CUSTOMERS OUTSOURCE IN ASIA PACREASONS %

0 10 20 30 40 50 60 70 80

To facilitate change

IR issues

Cater for peaks

Access unique services

Corporate philosophy

Source experience

Access no IT

Asset reduction

Focus on Core

Service

Cost 71%

51%

43%

31%

20%

20%

17%

17%

9%

6%

3%

WHERE HAS THE BIGGEST % CHANGE FROM INSOURCED TO OUTSOURCED LOGISTICS BEEN (2008 TO 2013)?

0 5 10 15 20

Product Customization

Warehousing

Order processing

Invoicing

Inventory management

Logistics IT 16.6%

15.2%

15.1%

14.3%

12.5%

10.9%

WHAT DO CUSTOMERS THINK IS WRONG WITH OUTSOURCED LOGISTICS PROVIDERS? (2010) (ANSWERS TO A SURVEY)

0 5 10 15 20 25 30 35 40

High employee turnover

Employee quality poor

Poor reporting

Lack of strategic vision

Cost/service not matching expectations

Slow to implement change requests

Late performance issue resolution

Do not proactively identify improvement 38%

17%

15%

15%

13%

13%

8%

6%

WHY DO SOME CUSTOMERS DECIDE AGAINST OUTSOURCED LOGISTICS?Logistics is a core competency

for the customer

Negative experience with outsourcing in the past

No logistics outsourcer capable of meeting

specialised requirements

Customer achieves better service at lower cost by itself Outsourced in the past,

moved operations back in-house

Other

34.5

17.217.2

10.3

10.3

10.3

WHICH REGIONS GENERATE THE MOST OUTSOURCED LOGISTICS REVENUE?

28%

8%5%

29%

30%

28%

8%5%

29%

30%

Europe

North America

Asia-Pacific

Latin America

Other regions