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Solution Design in Logistics Outsourcing

Briefing Pack

Richard Gibson

October 2010

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Hypothesis

The length and stability of an outsourcing relationship is directly related to the

amount of effort expended by the customer in designing their logistics

solution.

A research project based at the University of Huddersfield and supported by the Chartered Institute of Logistics

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• Research project commenced 2007• Literature review delivered 2008• Research methodology agreed 2009• Case studies completed 2008 & 2009

– British Sugar; behaviours in the outsourcing process– J Sainsbury’s; contractor management

• Interviews conducted in Q1 2010– 14 Logistics leaders

• Policy Delphi survey– Survey 1 published April 2010, addressed to 1,002 logistics

professionals including the CILT Outsourcing and Procurement Forum– Survey 2 published July 2010– Survey 3 published September 2010

• Project conclusion expected Q1 2011

Research – progress to dateProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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Early results; behavioursWhat is a poor set of behaviours in this environment?

The client has

•Little or no standard specifications•Little or no service level management criteria•Little or no frequent cost control•No understanding of the cost of the supply chain or an element thereof•No cost to serve modeling•Procurement specialists work independently of the Logistics team and are focused only on cost reduction in procuring logistics functions•There is unlikely to be a coherent plan describing how the supply chain should look in the future•Any outsourced solution is likely to be prescribed by the LSP

Balcony view

•This is the territory for outsourcing poorly performing and misunderstood areas of the business•It could be a highly transitory environment where bad areas of the business are outsourced for short term cost benefits.•Classic ‘outsource a mess and get a mess back’ territory

What is a good set of behaviours in this environment?

The client has

•A strategy or roadmap describing the supply chain of the future and how it supports the core competencies of the business.•A clearly defined set of objectives, balanced with the needs of safety, health and environment.•A high level of familiarity of the cost of the supply chain•The capacity to model supply chain costs, perhaps supported by a data warehouse style model.•A clear understanding of where the competitive edge lies in the business. •A clear service level management policy

Balcony view

•The customer will exhibit a high degree of control•The customer will have a clearly defined set of targets for any LSP involved in their supply chain•The customer may be using outsourcing alongside decentralisation and rationalisation to achieve supply chain targets•The customer is willing to share their metrics with others to endorse their ‘best in class’ approach

Progress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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Early results; behaviours

LSP’sThe good and the bad

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Early results – a hierarchy of risk and reward


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Blind Outsourcing: No service or operational criteria, customernot able to specify requirements, probably chasing a cost saving.

Procurement Officer Outsourcing: Specification basedOn previous 12 to 18 months performance. Save money

Outsourcing to change an element of the supply chainthat customer cannot do on their own. End result defined

in terms of infrastructure, people & process is agreed with the customer pre contract.

Targets agreed across term

‘Traditional outsourcing’ led in partnership with Customer’s logistics team or consultants. Process includes ITT, RFI etc

Prescriptive: Customer ownsInfrastructure and assets.

LSP supplies labour and IntellectualProperty within clearly defined

and closely managed boundaries

Customer Supply Chain Control

High

Low

Balance of riskto customer

Low

High

JSC with organisations

sharing infrastructure and risk


Early results; the future

• Opportunities– Benchmarking– Value chain analysis– Specification– Planning for the long

term

• Future challenges– Supply of managers– Outsourcing the

FULL supply chain– Procurement led

outsourcing– How important is

green?


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Early results; the hypothesis

• The last question of the last survey, asked respondents if they felt this statement was ‘true’ or ‘false’.

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‘The length and stability of an outsourcing relationship is

directly related to the amount of effort expended by the customer

in designing their logistics solution.’


InterviewsProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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• Interviews conducted with 14 logistics leaders based in UK and Australia

• Spread across public and private sectors as well as own account and fully outsourced operations

• Semi-structured interview style• Areas of divergence used as basis

for Survey 1

Interviews

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Interview structureProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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Interview findings• Principle areas of divergence

– Strategy– Specification– Knowledge of the outsourcing process

• Headlines– Customers do not realise the importance of specification– Customers are now purchasing logistics services in a

different way (ie Krajlic Model)– How do we know what good looks like? Feedback

confirmed benchmarking is not used as a tool to confirm this (see following slide)


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Interview findings; areas of divergenceProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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Interviews - fear of benchmarkingProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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SurveysProgress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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• Sent to 1,002 logistics professionals in April 2010• Survey collectors were closed with 237 responses in May 2010• Respondent roles

– 39% were board members or board leaders– 18% were senior supply chain roles– 33% may be described as middle management

• Respondents represented > 2,190 years of logistics experience• Headline question areas

– Strategy and functional specification– Cost, value chain, safety and defining success– Outsourcing– Environment and the future supply chain

• 158 respondents were happy to be contacted again

Survey 1

http://www.surveymonkey.com/s/op


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Survey 1Strategy and functional specification

• The majority of customers felt their strategic plans ran longer than the LSP’s perceived. On further analysis, specialists felt customers plans were built on an even shorter timesacle.

• A large proportion (but minority) of customers did not have written functional specifications for all or part of their supply chains

• Customers are unlikely to understand the relevance or content of KPI’s associated or included in their Operations Manual

• Many organisations rely on ‘embedded knowledge’ rather than an operations manual

• Customers may not understand the relevance or content of KPI’s.


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Survey 1Cost, value chain, safety and defining success

• Two thirds of the specialists felt that customers did not have a firm grip on their supply chain costs.

• Value chain analysis; most respondents had not used the tool. Of those that did, the best results were seen in the areas of transport and stock-holding

• A large number of respondents did not have safety targets in their supply chains

• Only one respondent reported monitoring the cost of accidents• In terms of defining success, questioning on benchmarking

suggested the service providers to be more blinkered than csutomers to what is happening in the wider market and this oculd be a limiting factor on the customer’s supply chain development

• The industry is generally unwilling to share learnings and success to improve standards and performance


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Survey 1Outsourcing

• When asked who was the most competent at managing the outsourcing process, customers and LSP’s were split down the middle in their responses

• Customers obtain their knowledge of outsourcing from an unstructured range of sources and a large minority do not seek training or knowledge on the matter

• Why do contracts fail? Those customers who had been involved in a failure felt it was their responsibilty by failing to scope the service, correctly designing the solution and then not managing the ongoing relationship. The LSP comments reflected these areas as well as admitting a degree of over-selling

• Service providers reported a change in the way customers procure logistics services


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Survey 1Environment and the future supply chain

• Who is likely to drive collaboration initiatives in the future? The majority of both respondent groups felt a combined approach was appropriate and they would also fund it together

• Green logistics was a popular topic amongst the group but few made the direct connection with reducing cost

• 77% of the entire respondent group reported having an environmental policy

• Only 50% of customers reported having targets for their environmental impact


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Survey 2Progress to dateEarly ResultsInterviewsSurvey 1Survey 2Survey 3

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Headline question areas

• Confirm how customers see the value of the Service Provider and how much engagement they sought before outsourcing

• Who knows the outsourcing process best• Have environmental targets been defined?• Strategic planning horizons• Supply chain safety targets• A fear of benchmarking• Presence of environmental targets• How stable is the supply chain?• Are contract variation clauses present and used?• What happens when ownership changes?

Survey 2

http://www.surveymonkey.com/s/R733GH3


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• Results downloaded at end of July 2010• 77 out of 148 people responded to the second survey• Discussion points

– Supply chains strategies and plan exist; customers think they plan over longer timescales than that the outsourcers think they do, and definately longer than the consultants know they do.

– Some customers change their lsp’s regularly based on their own business quirks– Everyone except the customers say they nurture relationships pre contract– A change of ownership of either party is said to have a negligible effect on the

relationship style or strength– The majority say they have a specification for their supply chain and the same

majority suggest it is out of date and difficult to understand.– Most are likely to monitor accident frequency, but few are likely to capture the cost– The benchmarking process is not understood– Few vary contracts to fit the changing business during term


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Shame a

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• Published September 2010• 67 respondents generated 1,945 pieces of data and

250 comments.• One respondent commented

‘Some of these opinions are the truths that cannot be uttered by 3PLs, but can be put in the same category as "3PLs don't innovate" and "3PLs don't collaborate". Customers can have exactly as much innovation and collaboration as they are prepared to allow. Good 3PLs can be a bridge to this good behaviour, bad customer behaviour is the biggest obstacle.’


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• Headlines– Customers typically work either one or three or more service

providers– Leadership in the outsourced relationship is lead through

regular contract reviews– In terms of value for money

• Service providers sais this was demonstrated through year on year cost and service improvements

• Customers said it was demonstrated by comparing to other operations

– The majority of repsondents agreed they had learnt good things from other operations which thay had then implemented in their supply chains

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• Headlines– Of the outsourcing pitfalls, respondents could not

agree on the following areas• Overlooking personnel issues• Losing control over the outsourcing activity• Failing to plan an exit strategy

– Written contracts assume the commercial agreement will be a success

– Finally..what does a good supply chain feel like?• 43 responses which were widespread in nature

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Richard Gibson

07814 554 051

[email protected]

[email protected]

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Download - Solution Design Logistics Outsourcing Summary Ppt 300910 Linked In

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