Outsourcing in Logistics
Understand concepts about outsourcing in logistics, a trend present in several sectors of the corporate world
According to Professor Reinaldo Dias, author of the book “Topics Actuales em Administração: Quarteirização ”, published in 1998 by the publisher Alínea, we are talking about “the evolution of the outsourcing process, where the management of third parties passes to a fourth company ”. In other words, “outsourcing is the delegation of the administrative management of relationships with other temporary service providers (third parties, partners, suppliers) in a given project (or a portfolio of projects) to a company specialized in coordinating these actions”. Definition of this withdrawal from the Contabeis website.
We are talking about a trend present in several sectors of the corporate world. In the field of logistics it is no different. Outsourcing has become routine for many companies. Gülçin Büyüközkan , Orhan Feyzioglu and Mehmet Sakir Ersoy , Turkish researchers in the field of Economics, published in 2009 the article “Evaluation of 4PL operating models: A decision-making approach based on 2-additive Choquet integral ”, during the International Conference on Economic Production, where they call the fourth party 4PL (Fourth Party Logistic). In the article, they say that the companies’ attention to the relationship with the members of the CS (Supply Chain)has been growing, mainly with PSLs (Logistic Service Providers).
Professor Mauro Vivaldini, from the Department of Administration at the Methodist University of Piracicaba, in the article “Outsourcing, Quarteirization and Logistics Primarization ”, published in 2015, states that 4PL companies need to have close cooperation with traditional PSL and technology companies in the information. Vivaldini reports that researcher Alan Win, one of the world’s leading specialists in Logistics, says that “the attributes that contribute to ensuring the success of a 4PL are:
- Ability to manage the activities of several PSL;
- Experience in the management and integration of the different agents of a SC;
- Experience in managing, reducing and controlling costs;
- Understanding of CS in the specific sector for which it was hired;
- Capable of providing services at operational, tactical and strategic levels;
- Ability to coordinate day-to-day logistics in the different links of CS;
- Simplified and transparent accountability;
- Ability to coordinate and promote improvement in relations between the agents with whom it operates;
- Management vision to act with uncertainties;
- Able to act in process change, with knowledge in the areas of forecasting and sales and operational planning;
- Rigor in operational and management processes;
- Experience in global CS.”
Professor Vivaldini also recalls that “another important point for the 4PL is to have an understanding of processes related to collaborative management, since collaboration with customers and partners will be essential to coordinate operations.” It is also necessary to hire a good lawyer to create a secure contract that protects the interests of all involved.
And we cannot fail to observe the need for investments by the 4PL player in IT (Information Technology) resources, such as mastery of TMS (Transportation Management System) and WMS (Warehouse Management System ) . Complex and expensive management systems, which require very punctual experience, both in the transport and storage segments. In other words, a 4PL in the Logistics sector needs to know in depth the characteristics of the LSPs they work with. Otherwise, it is impossible to manage CS efficiently.
According to researcher Cláudio Ernesto Grutka Júnior, from the Universidade Regional do Noroeste do Rio Grande do Sul (UNIJUÍ), quoting author Marco Antonio Oliveira Neves, the main advantages of quartering are: “reduction of operating costs, less immobilization of capital, improvement in the level of service, operational flexibility, transformation of fixed costs into variable costs, concentration on core business. In addition to these benefits, the following advantages were also found: increased operational efficiency; reduced reliance on asset investments and depreciation; reduction of investment in training and manpower; transformation of employees into employers; reduction of labor liabilities; decrease in the cost of maintaining the own fleet; lower staff turnover; reduced risk management; learn to suppress capacity and costs in an agile and flexible way; and finally, reacting to financial crises.” Professor Reinaldo Dias complements this list, citing the advantages“the transformation of many contracts into a single one, simplification of negotiations, modernization, freeing up employees for other activities and increasing agility in decision-making ”. Grutka Júnior says that, depending on the case, there may be some disadvantages, such as “loss of control of the business; excessive reliance on partnerships with other companies; the possibility of assuming employment relationships and the increase in operating costs.” That is why prior planning is so important before implementing both the outsourcing of services and the outsourcing of the entire logistical process.
We are talking about intelligent measures, capable of significantly optimizing resources. In the United States, the country’s logistics cost corresponds to 7.7% of GDP. In Germany, that number is 7.4%. In Brazil, unfortunately, 10.6%. Data from KPMG Consultoria. That is, we need to make our processes more efficient. This can be done in companies, of course. But by hiring third parties and a fourth partner to manage outsourced logistics services, the industry or the store is able to focus on its real business, increasing the profit margin. Of course, we also need state or private investment in infrastructure to improve our communications and transport network in different modes. But that’s another story.
For the German researcher Hans Klose, outsourcing and 4PL mechanics are inevitable. He says that a 4PL can generate savings of up to 20% for the contracting company. Klose says that “the logistics provider operates throughout the supply chain. He integrates the supply network, enters the client’s production, managing the chain”, explains the researcher. “In Europe, this started with the logistics consulting companies, which carried out this operation”, adds Klose, in an interview with the AMCHAM website. He makes a point of emphasizing that the outsourced company usually does not have assets, as its focus is on operations management. This uniformity of the chain of command reduces the noise in the communication processes, avoiding wasted time and rework.
Klose states that a fourth-party project goes through stages such as strategy definition (business model), conception (processes, systems, resources), implementation (change, interfaces, training), ending with “go live” (making available to the public) and day-to-day operation. I mean, it’s not simple. But it works!
All these features can drive widespread investments, thanks to the aforementioned optimization. In what proportion? That for now no one knows. But with the changes imposed by the pandemic, many technological changes were anticipated, and soon we should feel this positive reflection in our economy.
At Águia Sistemas, we can help you add value to your CS. Contact us.