Logistics outsourcing

Transcription

1 Logistics outsourcing conceptual background and survey results Jari Juga Professor, logistics University of Oulu, Department of Marketing

2 Agenda Outsourcing Outsourcing defined Why (reasons for outsourcing) What (outsourcing scope) Outsourcing relationships loyalty/disloyalty Outsourcing to (in) Russia? Outlook

3 Outsourcing, def. Merriam Webster s ( dictionary defines outsourcing as to procure some goods or services needed by a business or organization under contract with an outside supplier. Outsourcing involves the transfer of goods and services production, previously carried out internally, to an external provider (Domberger 1998). Typically outsourcing is based on long-term relationship and involves several activities (transport, warehousing, etc).

4 Business Process Outsourcing, BPO BPO def.: movement of business processes from inside the organization to external service providers (Click & Duening, 2004) Offshore PBO means business process outsourcing where the service proivder is in another part of the world (e.g. factory jobs moving overseas) Onshore BPO means close to the physical location of the company, in the same city or country. Near shore BPO means business process outsorucing taking place in a neighbouring region or country; this allows companies to test BPO without the level of risk associated with going onshore.

5 Insourcing, outsourcing, offshoring Source: OECD 2006

6 Logistics service providers - LSPs Hauliers, transport operators/companies provide transport services Warehouse operators provide warehousing service Freight forwarders act as brokers for transport services, particularly for international transport, especially administrative services related to transport Port operators, stevedors Provide port services 3rd party logistics companies middleman in logistics channel that provides, by contract for a given time period, all or a considerable number of logistics activities for other firms (Virum 1993) 4th party logistics companies integrators (information management, physical operations typically outsourced); term coined by Andersen Consulting (Accenture)

7 Why outsource logistics key motives identified in the literature 1. Cost 2. Service 3. Operational flexibility 4. Business focus (core competence) 5. Asset utiliziation or efficiency 6. Change management (transformational ti outsourcing) 7. 3PL expertise 8. Problem-related l 9. Investment Source: Wilding & Juriado 2004

8 Risks of outsourcing Unrealized savings or hidden costs Less flexibility Poor contract or poor selection of partner Loss of knowledge/skills Loss of control/core competence Power shift to supplier Supplier problems (poor performance, bad relations, etc.) Losing customers, opportunitiies, or reputation Morale and employee issues Source: Kremic, Tukel & Rom (2006)

9 What is being outsourced Transportation is the activity that is outsourced most frequently. Also warehousing is outsourced fairly often but often only partly (e.g. peak season, during transport etc) Outsourcing of logistics information management and order processing is incrasing e.g. NokiaSiemens Networks recently outsourced much of the purchase order processing to CapGemini the jobs were soon moved to India. A recent global survey (CapGemini & Georgia State University) shows a wide variety of activities that have been outsourced in logistics but results vary in different surveys.

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11 Current state of logistics outsourcing in Finland (2008 survey by Oulu University) 0 % 20 % 40 % 60 % 80 % 100 % external transport internal transport warehousing logistics info mgmt order processing none some most all

12 Outsourcing surveys generally show high levels of buyer satisfaction on LSPs. The table shows results of a global survey in 2010 concerning benefits achieved by shippers. Source: CapGemini & Georgia State Insitute of Technology 2010 Outsourcing benefits

13 Offshoring results With labor rates as much as 10 x higher in the U.S. than in India, the ability of U.S. firms to capture overall offshore cost savings of 50% or more would not seem to be unreasonable. However, in their book Controlled Offshore Outsourcing with an Active Process, Lidman and Jacobson claim that typical offshore cost savings are no more than 10-15%. Deloitte Consulting also discovered that the average reduction in total cost was in the range of 10-15%. M. Milutes, 2004

14 Service satisfaction & loyalty (or disloyalty) in outsourcing relationships Empirical research generally supports the hypothesis that service quality experiences lead to overall satisfaction which lead to loyalty. All these concepts are somewhat problematic and they can be measured in various ways. Our survey in 2008 among Finnish i manufacturing companies (235 responses, 22.5% response rate) examined this hypothesis.

15 Satisfaction and Loyalty intentions Var. Description (scale: 1 fully disagree 7 fully agree) Mean St.dev. L1 With high probability we will continue the relationship with our present LSPs as long as possible. L2 L3 With high probability we will change our main LSP in the near future. With high probability we will outsource more activities to our main LSP in the near future L4 With high probability we will outsource more activities to new LSPs in the near future. S1 Please indicate your overall satisfaction with your main LSP (1 = very dissatisfied 7 = very satisfied)

16 Service performance measures F1. Operational service (α = 0.821) mean st.dev. Based on recent experiences with your main logistics service provider, please evaluate the service in terms of (scale: 1 poor... 7 excellent): F11 F12 ability to keep schedules (factor loading 0.89) ability to offer services promptly p (0.90) F13 ability to provide sufficient capacity (0.80) F2. Personal service (α = 0.878) Based on recent experiences with your main logistics service provider, mean st.dev. please evaluate the service in terms of (scale: 1 poor... 7 excellent): F21 service-mindedness of the personnel (0.89) F22 accessibility of personnel (0.90) F23 expertise of personnel (0.90) mean st.dev. F3. Cost performance (α = 0.848) mean st dev Please evaluate the impact of outsourcing on logistics costs (scale: 1 fully disagree... 7 = fully agree): F31 outsourcing has reduced our transportation costs (0.69) F32 outsourcing has reduced logistics personnel costs (0.76) F33 outsourcing has brought savings in logistics costs (0.86) F3x outsourcing has reduced our warehousing costs (*)

17 Facilitators F4. Relationships (α = 0.795) mean st.dev. Please describe the relationships with your logistics service providers (scale: 1 fully disagree 7 fully agree): F41 We have cooperated for a long time with our LSPs (0.82) F42 F43 We have good personal relationships with our LSPs (0.88) We have good routines for solving emerging problems with our LSPs (0.83) F5. Brand image (α = 0.769) Please describe the impression you have of your main logistics service providers (scale: 1 fully disagree 7 fully agree): mean st.dev. F51 F52 F53 Our main LSP is a well-known name in its industry (0.85) Compared to other logistics providers, our LSP is a leading brand in its industry (0.89) Our main LSP is a highlyhl respected company (0.74) Note: F3x was dropped because of poor factor loading

18 Regression analyses: antecedents to loyalty & disloyalty in outsourcing relationships Dependent var. Explanatory vars. (standardized coefficients) F (sig) L1 continue 0.33 F F F F F5 F19.8 (0.000) L2 change -0.00F1 0.25F F3 0.02F4 0.13F5 F 4.35 (0.001) L3 more 0.02F F F3 0.10F4 0.06F5 F 1.57 (0.169) L4 more to new LSPs -0.05F1 0.09F F F4 0.07F5 F 1.07 (0.379) F1 = operational service performance F2 = personal service performance F3 = cost performance F4 = relationships F5 = LSP s image Note: statistically significant (P<0.05) coefficients in bold Source: Juga & Juntunen (2011)

19 Structural equation model (SEM) - impact of service performance and facilitators on satisfaction and loyalty Source: Juga, Juntunen & Grant (2011)

20 " Russian outsourcing set to boom" The IT outsourcing market in Russia will reach a billion dollars in 2007, according to the chairman of the Russian branch of US semiconductor giant Intel. "Hundreds of companies are investing in Russia in outsourcing - this market is going g to reach a billion dollars (740 million euros) this year," Steve Chase told the Russian Economic Forum in London. May 2, 2007

21 Outsourcing to Russia IT Park, Petrozavodsk MISSION: to promote hi-tech products in Nordic countries and the Russian Federation by building on the existing scientific-educational ed cational and technological potential of its personnel; by formulating uniform policy throughout, and by coordinating the activity among its entities. Ingria Technopark, St Petersburg an innovative activity territory where companies of the high technology sector enjoy accelerated interaction due to the availability of developed infrastructure and rendering of the necessary services. I-Park Lemminkäinen The Industrial Park Lemmikäinen in Kaluga attracts clients who need easy access to rail- and highway systems, proximity to Moscow, and support from a regional government that guarantees reliable delivery of crucial infrastructure.

22 Outsourcing in Russia - challenges The study focuses on the key factors in outsourcing from the viewpoint of manufacturing companies operating in Russia. The goal has been to give an overview of the different kinds of challenges companies might face in the case of outsourcing. The qualitative study involves from large-scale manufacturing companies (two local and one international) operating in food industry in Russia. According to the respondents, a big challenge is to find a suitable supplier in the Russian markets. If there are suppliers available, they may often not be capable of operating as outsourcing partners. The most common problems faced with suppliers are unstable quality and arbitrary pricing. Source: Ahola (2008).

23 Summary & Outlook Transportation ti has already been outsourced to a large extent (mostly cost-based competition). Outsourcing of warehousing and other value-adding adding activities in logistics has been slower than expected (although many international studies say these are increasing). Service quality is a key criterion for outsourcing relationship continuity. It is difficult to explain the increase of outsourcing scope however, cost benefits is a plausible reason for willingness to increase outsourcing scope.

24 Literature Ahola, I. Outsourcing Challenges in Russia. Lappeenranta University of Technology. Publication 51, Lappeenranta Click, R.L. & Duening, T. (2004), Business Process Outsourcing: The Competitive Advantage. Hoboken, NJ: Wiley. Juntunen J. (2010), Logistics Outsourcing for Economies in Business Networks. PhD thesis, University of Oulu, Logistics ( Kremic, T., Tukel, O.I. & Rom, W.O. (2006), Outsourcing Decision Support: A Survey of Benefits, Risks and Decision Factors. Supply Chain Management: An International Journal, Vol 11 No 6. Razzaque, M.A. & Sheng, C.C. (1998), Outsourcing of Logistics Functions: A Literature Review. International Journal of Physical Distribution & Logistics Management, Vol. 28 No. 2. Wilding R. & Juriado R. (2004), Customer perceptions on logistics outsourcing in the European consumer goods industryinternational Journal of Physical Distribution & Logistics Management Vol. 34 No. 8. Inside Outsourcing. Deloitte Research Outsourcing Study The State of Logistics Outsourcing: Results and Findings of the 15th Annual Study. CapGemini Consulting & Georgia State University. Global 3PL & Logistics Outsourcing Strategy. Eyefortransport and Mercury Gate 2011.