In the past, the reason for outsourcing logistics processes was the approach of viewing logistics management as a purely functional and monetary factor and not as part of the value chain and therefore the company’s own core processes. In many cases, the monetary effects of the different wage structures were a convincing incentive to outsource.
The changing boundary conditions in the company on the one hand and the technical possibilities on the other open up an alternative perspective on the decisions previously made. While a possible reduction in capacity utilization in the production area opens up the option of securing jobs by generally insourcing production and logistics services, the introduction of modern tools in the field of ERP and MES systems in conjunction with RPA (Robot Process Automation) and AI (Artificial Intelligence) opens up optimization potential in logistics management that can only be leveraged through a seamless and integrated value and logistics chain.
In the recent past, technical solutions and tools in particular have shown that the implementation of intelligent and innovative processes in supply chain management sometimes presents major challenges and untapped potential for companies that rely on external logistics service providers. While innovative logistics service providers are similarly well positioned here, our experience from various projects has shown that the majority of logistics service providers lag behind the peer group and struggle to close this gap. For the manufacturing company, this means higher costs for the logistics service providers and, in most cases, less flexibility to meet the needs of their own customers.
Consequently, by insourcing production logistics, the customer-oriented company can consistently align production and logistics processes to customer requirements and react more flexibly and better to changes.
Hidden error potential
In order for innovative processes in production and logistics to mesh, uniform systems and interfaces are needed. Only in this way can all those involved benefit from functioning processes and workflows. Different systems increase the potential for errors.
If delivery problems occur, it is common practice in many companies to place the responsibility with the external service provider. In many cases, however, internal factors such as deficiencies in production planning lead to problems in the supply chain.
“Finding the sources of errors in your own company and optimizing them in a targeted manner strengthens your own competitiveness in the long term.”
Felix Frankenbach, Division Manager at ifp consulting
Dependence on the logistics company
The dependence on external logistics service providers should not be underestimated. The relevant contracts are generally designed for longer periods, which also limits flexibility. We experience these dependencies time and again in our projects, as well as the powerlessness of being tied to a less innovative logistics service provider in the long term. Therefore, this must always be questioned with regard to the use of innovative processes in logistics management. If there is no sufficient perspective here, we recommend either changing the service provider or insourcing these services.
Unused optimization potential
One important point is the loss of expertise that a company accepts when it outsources logistics. Building up internal expertise and keeping it within the company is an important competitive factor. Valuable expertise is created when internal processes are automated and optimized using AI.
Due to short-term contracts and cost pressure, logistics service providers are unable to amortize necessary innovations during the term of the contract. However, a lack of willingness to invest means that optimization potential remains untapped.
Insourcing as a possible option
The strategic decision to outsource logistics services in the past has often led to a situation where the appropriate skills and capacities are no longer available internally to implement a rapid insourcing solution. We recommend a multi-stage approach:
While steps 1 and 2 are still relatively easy to process, determining the logistics company’s willingness to change involves considerably more effort and must be secured accordingly.
The development of in-house capabilities and capacities must take place step by step and according to a clear roadmap. The effort and potential risks involved in implementing innovative processes and systems in your own company must also be taken into account. Implementation should therefore start with the production supply processes and then continue “upstream”. This reduces the complexity of the introduction, but also the effort required on the personnel side to find and deploy the right employees.
Reintegration measures can be profitable for companies of any size.
Customer expectations such as reliability, adherence to delivery dates and ecological awareness play a key role in logistics management and the overall corporate strategy.
To ensure customer satisfaction, companies need to scrutinize their own value chain and also question their supply chain management processes. This is where our structured, objective approach and our knowledge of the latest innovative technologies in supply chain management (SCM) help to develop a best practice logistics solution. You can find tips and best practices in our white paper on supply chain excellence.
The decision to insource or outsource logistics is a strategic corporate decision that must always be carefully weighed up. Especially as the reintegration of logistics processes without existing expertise can be fraught with pitfalls.
As a technical management consultancy, we provide support by taking an objective and structured view of the problem and, in addition to costs, qualitative and quantitative benefits and time horizon, we also highlight the risks associated with such a decision.
