Whether an organization decides to outsource or in-source or run a hybrid approach, the biggest challenge facing them is the alignment of their logistics execution and IT strategy. It is imperative that these two be aligned and complementary. Unless the information about flow of products is streamlined, the logistics flow suffers, irrespective of whether the operations are in-sourced or outsourced.
US manufacturers are increasingly outsourcing their logistics and supply chain execution (SCE) processes to third-party logistics providers (3PLs). These processes include distribution, warehousing, packing, shipping, trade management and returns processing. According to Armstrong & Associates Inc., even with 2012’s slower pace, the growth rate of 3PLs will likely be triple that of U.S. GDP growth rate.
A vast majority of the organizations take a hybrid approach to outsourcing. They run a mix of outsourced and in-sourced logistics operations, i.e., some aspects of the operations are run by 3PLs and others are run and managed internally. This is due to a number of reasons:
- Cost or other business factors that make in-sourcing a better alternative for a certain geography or a product, while letting the same operations be outsourced for other geographies or products.
- A post-acquisition integration plan that may lead to a hybrid logistics approach based on the relative strengths of the two organizations in those processes.
- A senior management mandate to change sourcing strategy for some products, segments or markets and bring it in-house.
- A way to remediate a history of consistently troubled outsourcing relationships and bring that process in-house.
- A healthy look at an old sourcing decision to find the right mix of in-house and outsourced services based on current business goals.
Whether an organization decides to outsource or in-source or run a hybrid approach, the biggest challenge facing them is the alignment of their logistics execution and IT strategy. It is imperative that these two be aligned and complementary. The reason is very simple – unless the information about flow of products is streamlined, the logistics flow suffers, irrespective of whether the operations are in-sourced or outsourced.
