Outsourcing Logistics – A Rational Decision
“Many business decisions are based on the mistaken belief that the objective,
in any business decision, is to maximise profit. Actually, of course it is to
maximise return on capital employed, of which profit is only a part. The other
part is capital employed.
Once managers appreciate how much capital is tied up in their logistics they
have a rational basis for deciding whether to outsource it.
Warehouses are expensive. They tie up large amounts of capital and there
are few companies, other than the logistics companies themselves, that can
utilise these resources effectively. Manufacturers and traders’ stock levels
fluctuate so either their stores are either under-utilised or they are desperately
seeking extra space. Factory buildings have fairly low eave heights; purpose
built warehouses are tall allowing far greater storage per square metre.
They are also designed for moving goods around, equipped with the right
handling gear and backed by the right software.
Vehicles too, are expensive and it is rare that the average company can use
them effectively. One of the biggest issues the haulage industry faces is the
return load problem, vehicles going out full but returning empty, but at least
the haulage company can tap into a network that can ease this problem.
Few non-logistics companies have this opportunity.
Mathematically it makes sense to outsource, the saving on capital employed
is so great, but the shear operational demands are such that there are few
companies that cannot benefit from bringing in the experts. Good logistics
companies have knowledge, experience and systems that few non-logistics
companies could ever expect to match. In most companies logistics is very
much an after thought: their focus is on their core activity, manufacturing or
trading.
By outsourcing your logistics in the right way you will produce not only a
large reduction in the Capital Employed, but also a significant improvement
in the total overall operating expense. And you can use the savings on capital
expenditure where it will make real returns.
Very simply, on all counts, it generally makes sense to outsource logistics!
And if you can outsource the entire process your returns will soar!”
An extract from a paper on outsourcing by www.essenceofbusiness.com
Outsourcing Logistics – A Rational Decision
Many business decisions are based on the mistaken belief that the objective, in any business decision, is to maximise profit. Actually, of course it is to maximise return on capital employed, of which profit is only a part. The other part is capital employed.
Once managers appreciate how much capital is tied up in their logistics they have a rational basis for deciding whether to outsource it.
Warehouses are expensive. They tie up large amounts of capital and there are few companies, other than the logistics companies themselves, that can utilise these resources effectively. Manufacturers and traders’ stock levels fluctuate so their stores are either under-utilised or they are desperately seeking extra space. Factory buildings have fairly low eave heights; purpose-built warehouses are tall allowing far greater storage per square metre. They are also designed for moving goods around, equipped with the right handling gear and backed by the right software.
Vehicles too, are expensive and it is rare that the average company can use them effectively. One of the biggest issues the haulage industry faces is the return load problem, vehicles going out full but returning empty, but at least the haulage company can tap into a network that can ease this problem. Few non-logistics companies have this opportunity.
Mathematically it makes sense to outsource, the saving on capital employed and therefore the increase in Return on Capital Employed (ROCE) is so great; but in addition the shear operational demands are such that there are few companies that cannot benefit from bringing in the experts. Good logistics companies have knowledge, experience and systems that few non-logisticscompanies could ever expect to match. In most companies, logistics is very much an after thought: their focus is on their core activity, manufacturing or trading.
By outsourcing your logistics in the right way you will produce not only a large reduction in the Capital Employed, but also a significant improvement in the total overall operating expense. And you can use the savings on core activities where it will make real returns.
Very simply, on all counts, it generally makes sense to outsource logistics! And if you can outsource the entire process your returns will soar!”
