The decision between outsourcing or carrying out your own logistics operations has been a topic of great importance for companies for a long time, as we've seen here. Each of the two options has advantages and disadvantages. On the one hand, operating logistics on your own provides direct control over your operations and an accumulation of internal knowledge that allows you to continually improve your operations. On the other hand, operating on your own requires investment and can reduce operational flexibility for expanding or reducing volumes.
Outsourcing, in turn, allows the company to have greater focus on its core business, being able to allocate its logistics operations to companies specialized in the field, making it easier to increase and reduce volumes operated. In return, the company gives up greater control over its operations. It's a classic trade-off. The decision whether or not to outsource depends on many factors, such as the sector in which the company operates, the behavior of demand, the supply of logistics service providers, the comparison of the costs of alternatives, among others.
However, companies that consider outsourcing as a viable option for their logistics should not just decide between “outsourcing or not outsourcing”. They must also ask themselves: what to outsource? What are the possible outsourcing scopes to be done? Perhaps this question is more important, as it can define the success of the outsourcing process and, consequently, the success of the company's business.
The most traditional logistics outsourcing model is one in which the company hires service providers to fully or partially operate one or more logistics activities. In this article we are calling this format Logistics Operations Outsourcing. With the advent and popularization of e-commerce, two other forms of outsourcing came to light: Fulfillment and Full-Commerce, which involve not only the outsourcing of specific logistics activities. Let's talk about each of them below.
- Outsourcing of Logistics Operations:
Logistics operations include a range of activities such as storage, separation and packaging (picking and packing), urban distribution, reverse logistics, inventory control, crossdocking, among others, as shown in Graph 1. The graph presents the results of a survey carried out in 2022 by ILOS in partnership with ABOL (Brazilian Association of Logistics Operators) which shows the percentage of Logistics Operators that carry out each of the aforementioned logistics activities. As you can see, the list of logistics activities is extensive.
Figure 1 – Percentage of Logistics Operators that carry out each of the logistics activities
Source: ILOS and ABOL – 2022
Outsourcing logistics operations involves delegating one or more of these activities to a specialized partner. When operating in this outsourcing model, companies can benefit from the existing infrastructure and expertise of a consolidated logistics operator in the market, in addition to a well-established distribution network. This can be particularly advantageous in sectors where logistics plays a key role, such as retail, e-commerce and manufacturing. But the costs and benefits do not always compensate for outsourcing all activities, and partial outsourcing of operations is also used.
- Fulfillment:
Fulfillment, in logistics, refers to the process of fulfilling and delivering customer orders completely and accurately. This includes receiving the order, preparing and packaging the products, processing payment and delivery to the customer. Companies looking to expand their e-commerce operations often turn to outsourced fulfillment services to handle the growing demand for fast, efficient deliveries. In this model, the company outsources product storage, order preparation, packaging and delivery to customers, leaving the entire distribution flow in charge of the third party. This allows companies to focus on expanding their business, while the fulfillment partner takes care of day-to-day logistics.
- Full-Commerce:
Full-Commerce encompasses all commerce operations, from the acquisition of products or raw materials to final delivery to the customer. This means that Full-Commerce covers not only the integration of sales channels, but also inventory management, fulfillment, payment systems, marketing, customer service and other aspects related to commerce, such as reverse logistics. Outsourcing full-commerce is the most comprehensive way among those mentioned here. This approach is especially suitable for startups and companies that want to quickly launch an e-commerce operation without investing heavily in infrastructure and personnel. Outsourcing full-commerce allows companies to enter the market faster, reducing risks and initial costs.
The decision between outsourcing or operating on your own, when not made solely for strategic reasons, is more assertive if based on previous quantitative analyzes that prove the advantages of one over the other. Analyzes such as demand forecasting, transport sizing, storage capacity sizing, as well as associated costs, can support the decision about outsourcing and what to outsource. Furthermore, having a good view of the market and knowing the potential logistics operators that would have the capacity to operate an outsourcing model is fundamental to the success of the operation.
ILOS has experience in carrying out analyzes on different types of consultancy projects that we deliver to our clients. This experience, combined with the knowledge of the logistics operator market accumulated over the years, can be very useful for companies that are considering some outsourcing model, regardless of the model to be adopted.
Is your company considering outsourcing or insourcing any of its logistics operations? Speak to one of our experts.
References
- ILOS/ABOL (13/12/2022) – https://ilos.com.br/panorama-do-setor-de-operadores-logisticos-no-brasil/
- ILOS (30/03/2016) - https://www.ilos.com.br/terceirizacao-logistica-no-brasil-2/
