Company sales of noise-canceling headphones were skyrocketing. Manufacturing and the warehouse were prepared, but outdated ordering systems and delivery inefficiencies kept the product sitting in inventory for far too long.
Real-time operations technology, speed to market and end-to-end visibility are just a few of the reasons that executives will prioritize logistics outsourcing in 2020.
Leaders used to ask, “Should I outsource?” Now they’re asking, “How much should I outsource?”
“Digitalization, globalization and rapidly evolving customer expectations demand a shift in how leaders responsible for logistics approach outsourcing strategy,” says Courtney Rogerson, Senior Principal Analyst, Gartner. “The task for supply chain leaders responsible for logistics is to also know how the logistics function will be used to achieve business success.”
In short, logistics outsourcing strategy should flow directly from the business strategy. And that means decision makers should consider how optimizing logistics can support overarching goals.
How outsourcing logistics has changed
Business leaders used to ask, “Should I outsource?” Now they’re asking, “How much should I outsource?” Businesses have outsourced warehousing and fulfillment tasks for years. Today, more businesses rely on third-party logistics providers (3PLs) for functions including packaging design and management of company-owned assets.
And more businesses are looking to outsource fourth-party logistics (4PL) than ever before, with 42% of respondents to Gartner’s Logistics Outsourcing Survey and Analysis looking for providers that can design, build, run and measure logistics functions.
Why businesses outsource logistics
Supply chain outsourcing has largely become mainstream. Over 80% of professionals indicate that they plan to significantly increase logistics outsourcing budgets beyond warehousing and fulfillment in 2020, according to our survey. And it isn’t all about cost optimization, either. Only 34% of survey respondents named saving money as a priority.
What is driving the increase in budget is a need to update operations technology and support increasingly complex logistics operations. Supply chain officers want faster speed to market, end-to-end visibility and better data quality. Even the most modern 3PL providers have trouble keeping up with evolving challenges, so businesses are eager to partner with organizations to manage the complete logistics life cycle.
The challenges of outsourcing logistics
As companies outsource more functions and supply chains grow more complex, choosing, managing and coordinating between multiple vendors takes up valuable time. But that’s just the beginning.
In addition to the time spent managing multiple 3PL providers, businesses face system incompatibility issues that make it difficult, expensive or impossible for them to “talk” to each other. Multiple steps are required to retrieve, deliver and analyze data.
Customer expectations pressure businesses to expect even more from their 3PLs and 4PLs
And if 3PLs don’t maintain secure systems, the risk of cyberattack increases, for both the 3PL and the business. For less-mature organizations, these unforeseen challenges can result in unmet cost savings and unsupported ROI expectations — no matter how realistic they were to begin with.
Internally, ever-growing customer expectations pressure businesses to expect even more from their 3PLs and 4PLs. Organizations with rigid internal cultures that resist change or have little appetite for risk won’t maximize outsourcing’s potential for ROI.
Outsourcing is worth the money when objectives are realistic
Outsourcing keeps businesses agile and customer-forward, but leaders may struggle with technical and cultural challenges that limit ROI. Nevertheless, companies that invest in outsourced logistics typically find that it’s worth the money, according to the survey, even if it doesn’t result in hard cost reduction.
In short, executives and functional leaders who design an outsourcing strategy that maps closely to overarching business objectives may find the investment well worth the effort.