Just 17% of shippers want to outsource more physical operations and only 10% want to outsource supply chain management
43% of shippers plan to enlarge pool of logistics partners to improve resilience to future shocks
Seven key motivations are driving long-term trend to outsource logistics functions
Risk management, flexibility and access to technology are three top considerations in shippers’ decision-making
Most shippers don’t plan to outsource more of their supply chain functions; instead many intend to enlarge their pool of logistics partners to increase resilience to shocks like the Covid-19 pandemic, according to a new analysis by Transport Intelligence (Ti).
Ti said this is one of the outcomes of the surveys it ran throughout 2020 on strategic choices shippers would make about their future operations, from sourcing and business planning to outsourcing.
The surveys found that, on the whole, most shippers are not planning to outsource more of their supply chain functions in the future. In fact, just 17% of shippers want to outsource more physical operations and only 10% wanted to outsource supply chain management functions.
More significantly, Ti found that 43% of shippers plan to enlarge the pool of logistics partners they use for the services they do outsource to.
The long-term trend for shippers to outsource their logistics functions has been driven by seven key motivations, outlined by Jo Godsmark and Gwynne Richards in their 2020 book, “The Logistics Outsourcing Handbook.” The seven motivations of shippers are:
- Poor internal logistics capabilities
- Need to reduce asset capital
- Need for greater flexibility and scalability
- Wanting to transfer/manage risk
- Wanting to concentrate on core competencies
- Need to reduce costs
- Wanting to access new technology
In normal times, any combination of these motivations could lead to an outsourcing decision, but the experience of the pandemic has highlighted the importance of managing risk, making it a central consideration in the outsourcing decision-making process, said Ti.
The logistics market intelligence provider added that the events of 2020 have also underlined the need for flexibility in response to risks, and for good technology to enable the management of supply chain disruption.
By outsourcing to a larger group of logistics partners the 43% of shippers looking to diversify their supplier pool expect to improve their risk management, flexibility and access to technology, three considerations that are growing in importance in their plans and decisions.
In theory, having more suppliers should grant shippers more flexibility and greater access to capacity, enabling them to move freight even in a capacity crunch like the one seen over the course of the pandemic.
More suppliers should also expose shippers to more leading technologies, giving them additional tools to manage disruption.
Ti advisers shippers that to ensure they get the benefits they are seeking, they must also select the right logistics partners. This can be done not just by relying on the expertise of their logistics procurement teams to help find the right partners, but by also reaching outside of this knowledge base and doing research in the early stages of the outsourcing process.
For shippers to see a real benefit from enlarging their pool of logistics partners, they have to acquire the tools and resources to find the right suppliers; “otherwise, the potential benefits may well be lost,” it added.