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Adding Value with Logistics Outsourcing

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By Martin Conboy.

Adding ValueLogistics outsourcing can lower costs while raising service levels for manufacturing, distribution and retailing businesses. Taking advantage of the latest technology to drive process automation can deliver significant returns. But there are significant, tactical, operational and strategic issues that need to be addressed.

Logistics is a broad term referring to the movement and handling of goods and materials. It covers transportation, warehousing, order processing and inventory management. The performance of the logistics industry affects the Australian economy.

How well it’s managed, and the quality of the infrastructure to support it, impacts the cost structures and revenues of Australian producers and their competitiveness in delivery times and product quality. According to research from the Australian Industry Group, transport and logistics costs comprise a considerable proportion of total manufacturing costs, equal to more than half of general administration costs and almost as much as spending on marketing, water, energy and research and development combined.

The responsiveness of producers to consumer requirements and the demands of their market depends on the logistic systems delivering goods to market. As a high cost location to do business, improving logistics performance is vital to Australia’s economic future. As supply chains need to become leaner outsourcing becomes an increasingly attractive proposition.

According to research from the Australian Bureau of Transport Statistics, over the last decade many Australian firms have been developing and implementing strategies toimprove their logistics performance. To some extent that has involved improving in-house centres and operation, but increasingly it has meant outsourcing to a third party provider who can provide greater access to scalable capacity.

Third party logistics providers (often referred to as 3PL Providers) deliver integrated operation, warehousing and transportation services that can be scaled and customised to customers’ needs based on market demands.

A key capability for third party providers is flexibility. To meet their clients demands, particularly in volatile markets, they need to respond quickly to changes in volume, customer order profiles and tight shipping/delivery schedules.

Logistics technology and automation

 

Goods and material automation is a key element in delivering scale and flexibility. Well considered choices need to be made, however, about when and what to invest in. Depending on where the 3PL provider sits within the supply chain network, will determine the type of software and automated machinery that needs to applied.

Warehouses and distribution centres are a key focus for automation. A complete warehouse automation system can drastically reduce the workforce and hence costs required to run a facility. With human input required only for a few tasks, automation can handle most of the following

  • Automated goods in processes
  • Automated Goods Retrieval for Orders
  • Automated dispatch processing
 

Access to skilled talent when and where required

 

There is an increasing demand for casual labour, with a variety of skills, in logistics operations. The benefits of having a flexible and casual workforce, include:

  • Convert Fixed Cost to variable cost: Analyse your workload and activities to understand which processes can be handled by temporary or part-time staff. Reduce core staff to levels necessary to maintain normal operations.
  • Eliminate overtime: This can save your organisation about 20% on your HR bill.
  • Reduce training costs: Cut training costs and improve quality and productivity by employing skilled temporary employees.
  • Focus on core activity: being understaffed will lower the probability of a company meeting its productivity targets, which could have a cascading effect on the entire business. Ensure full-time employees are working on core activities for the business and non-core activities are undertaken by casuals
  • Avoid costs associated with burn-out: Pushing full-time staff to produce more with few resources increases stress which leads to problems with quality, productivity, absenteeism and turnover.
  • Get maximum productivity from existing staff.
  • Hire specialists: Temps can be utilised for specialist skills on short-term projects, even managing project teams. Often these people can bring skills that are lacking in your current team. They can be used for a fixed period, and then let go at the end of the project.
 

By combining the elements of skilled people, flexibility, and speed, 3PLs can help clients quickly adapt to market changes and gain competitive advantages including a broader range of value added services.

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October 1, 2014
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