Why insourcing? Not only to achieve optimal results, but also to create real added value in manufacturing companies, providing strong competitive advantages & future opportunities.
Logistics insourcing – strong benefits for production & industry
Warehouse logistics as a core competence in the company
Logistics insourcing is a buzzword that runs through all industries & disciplines. Because in the course of digitalization, logistics is also becoming smarter, more intelligent and above all: value-adding! Finally, supply management must also be able to react highly flexibly to changes in customer behaviour and new automation solutions.
Not only to achieve optimal results, but also to create real added value in manufacturing companies, providing strong competitive advantages & future opportunities.
It should therefore be high on the agenda to put one’s own value chain to the test and to scrutinize the control processes of the supply chain. However, this requires a structured, objective approach and knowledge of the latest innovative technologies in supply chain management (SCM).
Outsourcing logistics – what are the pros and cons?
The trend to outsource logistics services to external service providers had valid reasons many years ago and peaked in 2005. The biggest advantage of logistics outsourcing was the focus on the company’s own core competencies and the lower fixed costs. In most cases, external service providers can hire their staff at more favorable conditions and react more flexibly to changes & specific requirements with the help of temporary workers.
Similarly, in some regions of Germany it is difficult to find suitable logistics specialists. This is a not inconsiderable challenge for companies’ human resources management. Another reason why many companies outsourced logistics along with their requirements.
The problem here is that in the long term, outsourcing of core logistics processes can result in more disadvantages than advantages. The reason for this is the dependency situation into which the company puts itself.
The challenges of logistics outsourcing in detail
The real driver of the outsourcing phenomenon was the approach to supply management as a purely functional factor – rather than as part of the value chain. However, in view of intelligent & innovative processes in supply chain management, major challenges are emerging today for companies that rely on external delivery service providers. Thus, certain risks are associated with outsourcing.
» Dependence on the logistics company
The dependence on external logistics companies should not be underestimated. If difficulties arise here, for example because components are not delivered on time, this can result in gross consequential costs for the client. Sometimes at sensitive levels, especially for medium-sized and small companies.
Also to be taken into account: the personnel and financial effort that cooperation and problem solving with external partners entails. In general, a lack of independence leads to significant risks in corporate management.
» Quality & Image Losses
In dependency relationships, service quality plays a role in addition to the cost aspect. If there are performance problems in logistics, this reflects negatively on the brand and the manufacturer. A circumstance that has often led to sales losses in the past and should be avoided at all costs.
» 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. Too many different systems, e.g. due to a large number of service providers, increases the potential for errors.
If delivery problems occur, it is common practice in many companies to place the responsibility with the external service provider. And thus not to recognize and pass on one’s own mistakes. Experience shows, on the other hand, that in many cases internal factors, such as deficiencies in production planning, lead to problems in the supply chain. Finding these sources of error in your own company and optimizing them in a targeted manner strengthens your competitiveness in the long term.
One important point is the loss of competence that a company accepts when it outsources logistics. This allows the company’s own management to react much more slowly to changing market conditions. In addition, there are long response times resulting from the dependence on the service provider.
» Lack of willingness to invest
In the case of short contract durations with the service provider, there is another effect: logistics service providers cannot amortize innovations within a few years. Therefore, for many there is no reason to improve their own processes with the help of new technologies and there is a general lack of willingness to invest.
On the other hand, service providers do not always communicate whether and to what extent process optimization has taken place. This prevents manufacturing companies from benefiting from reduced personnel costs in the first place. More importantly, further optimization potential for the company’s own operations, such as improved handling of goods, cannot be exploited.
Logistics insourcing – the advantages at a glance
A competitive factor with a lot of potential
Today, logistical competence is regarded as a distinctive competitive differentiator and is thus an important success factor.
And rightly so, as the prominent examples of Amazon and Zalando show.
Because today, customer expectations such as reliability, adherence to delivery dates and ecological awareness play an essential role in logistics management & the overall concept of companies.
This qualitative approach promises profitable advantages that every forward-looking company must exploit for itself in order to keep pace in a dynamic market environment
Stronger customer loyalty
Improved processes have a direct impact on the relationship between customers and the company. Filtered information makes it easier to understand and meet customers’ needs.
Whether online or stationary – the insourcing of logistics has “business-critical” relevance. This is because the wealth of innovative options in this area is promising and can increase both performance and quality. In the future, it will therefore be crucial to develop in-house logistics competencies and resources and to keep them within the company.
100 % transparency
By insourcing production logistics, the entire value chain can be designed and exploited according to the company’s own needs. An important keyword in this context: data ownership – all data (1st party data) of the delivery process is collected and evaluated by the company itself, which in turn leads to more optimization opportunities.
Autonomy over processes
The more control the company has over all the processes involved, the lower the costs and time required to coordinate suppliers. Thus, autonomous operations are much freer, more self-determined and more flexible in their response to new market demands. In this way, the company always remains able to plan and act independently.
Logistics insourcen – more than a trend for companies
In the long run, reintegration measures can be economically and qualitatively profitable for companies of all sizes.
Only a few companies in Germany have yet recognized the enormous potential that lies dormant in the insourcing of logistics concepts. Since 2010, the number of “insourcing” companies has been rising steadily, but only slightly. Reason enough to now put one’s own value chain to the test and to focus more on one’s own supply chain management in order to generate competitive advantages.
In a nutshell, the decision to in- or outsource logistics is a strategic business decision that always needs to be carefully weighed. Especially since the reintegration of logistics processes (logistics insourcing) without existing know-how holds some stumbling blocks.
Experience has shown that it is worthwhile for manufacturing companies to seek support and guidance from a technical management consultancy. This not only ensures an objective, structured view of the problem, but also sheds light on the risks associated with such a decision, in addition to costs, qualitative and quantitative utility and time horizon.