Warehouse outsourcing checklist
The following checklist can be beneficial in making an informed decision when outsourcing your warehousing.
- View outsourcing as a continuous process rather than a quick solution for all your warehousing needs
- Involve all relevant parties in the outsourcing process at an early stage, rather than waiting. Deciding to outsource logistics activities can have practical and emotional implications for various subdivisions within your company.
- Ensure sufficient IT testing to ensure effective implementation.
- Maintain consistent data quality throughout the outsourcing process.
- Incorporate undocumented processes in your outsourcing project. Failing to do so can result in significant service disruptions during outsourcing implementation.
- Avoid letting uncommon scenarios become the norm. Ensure that exceptional processes are properly documented and included in the proposal stage to avoid additional costs that were not taken into consideration.
- Have a realistic understanding of your organization’s project management capabilities when embarking on a logistics outsourcing implementation. It is imperative to ensure that those involved in the project are skilled with project management skills and practices that align with those of the project manager.
Automotive supply chain
The initial action to decrease supply chain expenses typically involves attempting to renegotiate contracts with third-party logistics providers, followed by requesting tenders to compare prices between suppliers. While this strategy can lead to short-term benefits, it has its limitations in terms of achieving sustainable savings in the medium to long term. The initial cost reduction may turn disadvantageous when factors beyond the control of either the supplier or the buyer, such as market capacity imbalances, fuel costs, or increased logistics complexity, come into play. Despite the widespread belief that optimization is the way to go, the question still remains as to what the most effective way of achieving it is.
Level 1
Companies that are responsible for the final products, commonly referred to as OEMs or original equipment manufacturers, have developed significant expertise in optimizing their inbound logistics. Typically, OEMs manage the transportation of components from factories of Tier 1 suppliers to the vehicle assembly plants. Due to OEMs’ inbound logistics optimization, Tier 1 suppliers often locate their factories near the assembly plants to support just-in-time manufacturing. This is because OEMs handle the delivery of components from the Tier 1 supplier’s factory directly to the assembly line. Since many of these components are large and not easily stored, it is more practical to manufacture them on demand instead of taking up warehouse space and incurring additional logistics movements. The transportation costs and logistics for the supply chain from Tier 2 suppliers to Tier 1 factories are more intricate, as it is more probable that these suppliers are located elsewhere, potentially even in a different country.
Level 2
Let’s take the example of car seat supply from a Tier 1 supplier to an OEM assembly factory. The supplier is accountable for delivering seats to the factory under an OEM contract. The supplier’s factory is often located near the assembly plant or even within the same compound, making it easy to transport the seats using forklift trucks between the production lines.
However, not all factories within a supply chain can be located near each other, especially when considering raw materials that may come from agriculture or sources like oil extracted from beneath the sea bed for plastic production. For instance, the smelting of aluminum is an energy-intensive process that needs to be carried out near reliable and cost-effective power sources.
The supply of leather for car seats involves multiple suppliers who deliver to more than one car seat factory and OEMs. Each supplier collects part loads (LTL – “less than full truck loads”) several times a week and delivers them to the factories they supply. The shipments are not always full truck loads, and the process can be simplified by using a hub-and-spoke model, much like the airline industry. This can optimize the supply chain and reduce the number of required trucks.
Furthermore, siting a distribution center in a suitable location can improve supply chain efficiency by consolidating and reorganizing flows, reducing the number of less-than-full truckloads and direct shipments. It can also serve as a cross-dock, eliminating the need for storage. The location of the distribution center must be chosen carefully to avoid excessively long transit times. Despite potential transit time increases, having a distribution center can lead to significant savings and facilitate the coordination of just-in-time deliveries, resulting in a simpler and more efficient supply chain.
Conclusion
To achieve significant savings in transport and logistics costs, it is necessary to expand the focus beyond Tier 1 and consider the entire automotive supply chain. Both Tier 1 and Tier 2 inbound transport costs are considerably higher than outbound transport costs from final assembly to end customers. By optimizing the entire supply chain, including upstream suppliers, it is possible to identify areas for improvement and reduce overall transportation costs.
A closer examination of the lower tiers of the supply chain exposes a considerable portion of component costs attributed to hidden expenses arising from suboptimal supply chain management. Hence, conducting a thorough analysis of the complete supply chain, including lower tiers, can result in substantial cost savings by reducing inefficiencies such as shipping incomplete loads instead of full loads.
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