Options for outsourcing
The use of outsourcing can be a strategic decision or driven by management and cost saving. Once a decision has been made to consider outsourcing there is a need to identify the parts of the operations in respect to possible outsourcing options. The decision on the strategy should most importantly consider how suitable the various parts of the operation are for outsourcing the costs, any difference in performance a 3PL may offer, and any other financial implications that would result.
The options available vary as do the benefits and these options can be:
A 3PL provides management and operational resource within your own warehouse
To pass the entire operation over to a 3PL facility either as:
- A single user site
- A multi user site
Utilise a 3PL to carry out certain functions such as:
- Receiving /consolidation
- Specialised value added activities
- Pick and Pack
To let a 3PL use their own WMS or provide a system for a 3PL to use
Cost benefit analysis then will help identify the course you need to follow for instance:
- If the current operation’s site is owned, a move to a 3PL’s would allow for the release of capital to re-invest in the business
- Will the 3PL take on the current staff – TUPE (what are any HR issues and payments that will be required).
- Would the 3PL facility be better placed geographically in respect to in or outbound logistics
- Are the 3PL’s cost per case /unit less than current
There should also be a performance gap analysis included which is an objective assessment of company performance, strengths, and weaknesses supported by metrics and benchmarking comparisons if necessary. Use of outside expertise can be very useful in order to obtain objective results.
Consideration should be given to evaluating process details in light of the performance gaps to determine the most likely candidates for improvement through outsourcing.
The more comprehensive the preparation of the tender document is the better and more accurate will be the responses. It will also reduce the requests for clarification and extension of time from potential contractors. External help should be sought if you don’t have the knowledge internally to assist in preparing a tender. LPC has the experience to produce this document and supporting tables, response sheets etc. Details and flows that, for instance, we would want included:
- Product master data i.e. size and weight and special requirements for handling / storage
- Inbound details and volumes
- Order profiles, volumes and service requirements including order receipt times
- Any Value Added requirements
- Picking and packing details, volumes and requirements
- Despatch volumes time and other details
It is also necessary to provide the following which are just as important, if not more so:
- Business overview
- The requirements for stock control, reporting, service levels etc.
Specify the evaluation criteria which may include:
- Operational description including the functionality of the WMS
- Proposed location
- Respondent’s relevant previous experience (including references)
- Respondent’ s overall proposed solution
- How the response is to be answered to include provision of a program.
Tender evaluation and contractor selection
The evaluation is closely based on the details requested in the Tender documentation and while costs will doubtless rate highly it may well not be the cheapest that should get the recommendation.
Review all the responses either in conjunction with or after an independent expert, such as LPC, has provided an unbiased overview and score them and weight the results according to priorities. A short list of the preferred two or three of the respondents to proceed to the next stage of the evaluation should be determined.
Get the shortlisted 3PL’s to present their solutions and then set up visits to existing sites in order to evaluate:
- The solution offered
- Current operations
- Standards of managers in particular
- Compatibility with the management ethos and potential account managers
The all-important contract and service levels will be the start of the process. Ensure that all the KPI’s and service levels are tied down along with penalties for failure and bonuses for making savings/ over achievement if appropriate.
There are several elements that will govern the implementation of a move of an operation to a 3PL.
The two major ones may well be:
- Dates and or penalties of vacating existing premises
- The business seasonality (don’t want to move at or near peak)
Once the decision to move has been made a detailed plan will be required for how stock and order fulfilment will migrate. Some of the points to consider are:-
- Can fulfilment occur from two locations? (it may have to for a while)
- Can intake migrate first?
All of this should be planned in close co-ordination with the 3 PL and monitored in stages through to full operation. Don’t under estimate the project management and contingency planning required and make sure you have the resource available to undertake it.