Logistic outsourcing
The expenses, relating the core business and the management on non-core assets, which is not profitable, but is strictly essential for the normal operation of any company, are considered to be the necessary components of the performance of any enterprise. The greater they are, the more essential are the expenses, staff, as well as the load on management staff, which are connected with non-core activities.
At the new economic terms (= crisis), when the issue of survival is strictly discusses, the companies have to reconsider the approaches toward the organization of the business, cutting of or limiting to the minimum the all irrelevant, non-core activities, ancillary activities, expenses. However, the necessity of non-core activity is not eliminated.
There are at least two variants to solve these problems:
First: to perform reductions, sequester the business, press down, where possible.
Second: “To sell” the directions of underperforming, non-core business to the contractors, that is to say the professionals, who are specialized in these activities.
In fact, this is the essence of outsourcing. In everyday life, almost every day, we are confronted with the manifestations of outsourcing. It includes the protection of objects, cleaning services in large shopping centers, railway stations, subways, catering service of employees of the enterprises and so on.
The outsourcing of business processes includes a great deal of secondary functions.
Industrial and economic outsourcing, which includes the outsourcing of the operation of real estate, cleaning and catering services of the staff, fleet management of the companies and so on, is considered to be one of the oldest and mastered directions of outsourcing.
It also includes the staff management, inner audit, logistic or transport outsourcing, financial, supply, accounting outsourcing and other functions.
What is the benefit of outsourcing?
1. The owner of the business or the management of the company gets opportunity to concentrate his resources on the core type of business. Passing the primary and secondary functions to the logistic contractor / the outsourcer/, you minimize operating costs and in this way the most important issue of the management of the company is to achieve the greatest efficiency of the company.
2. Optimization of the number of employees by reducing support staff, and as a consequence the reduction of the operating costs or the transfer from the permanent category into variable, including substantial tax cuts and deductions and so on.
3. Refusal from the own logistic capacities: its fleet of trucks, distribution center, etc. As a consequence - the release of capital, reduction of property taxes, amortization, etc.
4. Diversification and decentralization of business in the transition of logistic outsourcing greatly reduces the financial, operational and "administrative" risks (remember the rule "Do not put all your eggs in one basket"?). You get opportunity to distribute your resources, directing them where they will work most efficiently. As a result the capitalization of your company increases.
5. The introduction of outsourcing enhances the company's reputation in the eyes of your potential partners and investors as it increases the investment attractiveness of the company.
6. The transition to outsourcing will provide your company with the influx of innovation, new technologies, management and business solutions that allow you to use the international best practices in the effective application of non-core assets.
7. The release of capital will allow you to reallocate to the best advantage for a strategic, long-term development of your company. You get opportunity to “buy” the best solutions, investing them on the project basis. You can invest on the implementation of best international practices without the need of external borrowing.
Here we mention the most important advantages of logistic outsourcing in our opinion, though this list is to continued.
Outsourcing, who is interested in it?
First of all the owners and directors of the companies should be interested in logistic outsourcing. The people, who are responsible for the success and perspective of the business, capitals, staff, can assess the attractiveness of "selling" the main activities.
As it was mentioned above the logistic outsourcing, invested in your company, attracts the potential partners and investors.
Logistic providers/ logistic operators/ will surely be interested in the public announcement of the company on the intention of transition to logistic outsourcing. You just have to select those who will be most fully meet your requirements.
Outsourcing, how does it work?
Modeling the situation: your company passed to the logistic outsourcing. What does it mean? The main business is gaining momentum at the expense of reinvestment of means, released after the realization of non-core assets and reducing costs. Your logistic operator, for which your company is a key value, the source of the main income, vitally interested in long-term mutually beneficial cooperation. It means that you can manage the relations in this tandem, ensuring the most favorable conditions for the fulfillment of obligations - such as the level of service, speed of service, tariffs, etc.
If your company is a meat processing plant, it means that you are in the centre of the chain of the management of deliveries. The producers (suppliers) of the meat are at the beginning of the chain, the enterprises of retail trade are at the final part of the chain. The deeper is the degree of refining of feedstock, the higher is the added cost of the final good, which is offered for the realization to the final consumer. The main share of the added value of the product is created by your company and it belongs to you according to the law. The main share of the added value of the product is created by your company and it belongs to you by the right, Consequently, the leading role of your company in the creation of the added value gives you leverage to influence on the price of raw material at the beginning of the supply chain and the price of the final product for consumers.
How it should be implemented? Logistic operator of high level is able to organize and structure the chain of the delivery in which your enterprise will become focal (central) company. You get legally confirmed ability to manage the quality of the good, the speed product distribution and profitability throughout the supply chain.
Outsourcing - how to start?
First of all it is necessary to estimate the situation as it is. It is necessary to estimate in this way in order to understand where the movement is and where it is necessary to go. There are 2 ways: to implement such estimation with the help of own specialists or invite independent experts. The estimation with own forces will not demand any additional expenses, but it has the disadvantage: the probability of bias, the inaccuracy results is great. The logistic expertise, logistic audit, implemented by the independent companies, are objective mark of the casual observer, who carries legal responsibility for the results of his/her activity. Thus, the additional expenses on logistic audit are very low for most companies.
It is advisable to create a project team headed by the project manager in order to implement the transition of the company to the logistic outsourcing. The number of the project group includes not more than five people, who are best-trained managers in areas of planning, finance, accounting, informative technology, workflow. The manager of the project, as a rule, is acting director of logistic or reservist candidate for the position with the appropriate authority and responsibility. The project group accepts the results of logistic audit from the performer and it develops the own project on transition to logistic outsourcing. The cooperation with consulting companies is not excluded.
The project on the transition of the company to logistic outsourcing should include the responses of the following issues:
• The aims of the company in case of the transition to logistic outsourcing, transition stages and tasks in stages
• The planned financial result for a year, two years and more
• The expenses for the implementation of the project
• The terms of realization of the project/ beginning-end/
• Releasing resources, exemplary plan of their release
• List of standardized logistic and financial indicators of evaluation of the work of outsourcer
• List of demands toward the outsourcer and others
The other step is to find logistic operator. Nowadays it is advisable to conduct a search on a competitive basis with the use of media and Internet resources.
Outsourcing — How does it help?
In the opinion of experts, the drop in growth does not threaten the short term and long term perspective of the market of logistic services. The average value of the profitability of the industry was approximately 11%, wherein the range of variation of profitability of operations of surveyed companies is from 0.5% up to 48%. The trend of declining of profitability in the perspective will stimulate more aggressive behavior of the company and growth of competition in the market.
The rate of the growth of the market of logistic services and accordingly, the industry of "Logistic" are relatively high. The average value of the absolute values of the growth of the annual turnover of logistic operators was about 8%, for freight forwarding companies - 23%, and warehouse operators - about 2%. That is why the competition in the market is still not high. But high rates of the growth of the volume of the market attract new competitors and can change the situation.
In this way, the economy substantiated by the growth of scales of volumes of providing services, and the essential practice increase the competitiveness of the company. Large companies in the market have a competitive advantage- the increase of volumes of providing services leads to reduction of costs and appearance of the possibility of lower prices. It means possibility of increase of further volume of provided services.
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