There are many sources of information that can provide reasons why businesses move from an insourced to an outsourced operation, and the main reasons can be summarised below:
- Cost savings
- Expertise and specialisation
- Scalability and flexibility
- Improved efficiency and service
- Risk mitigation
- Focus on core business
What is less-well documented are the reasons why businesses that are currently outsourced decide to change provider. From our unique viewpoint as an independent, external consultancy, we can broadly categorise these reasons into four areas.
No Choice – This is where the client has an existing relationship with a 3PL, and is not considering changing, and subsequently receives notice from the 3PL to end the contract. This is often down to changing strategies and priorities from the 3PL, space, location, or price issues. In these situations, a replacement partner needs to be found, and often at short notice.
Shared User/Partnership Issues – The existing operation has been running for a period time without incident, often using a shared facility such as a warehouse or a vehicle fleet, and something changes which causes the need for the client to re-evaluate the relationship. Recently examples include piggy-backing deliveries on another business’s liveried fleet or renting space in another business’s warehouse. The reason for the change could be both the clients, or the third-party business.
Performance/Relationship Issues – This is by far the most common reason for change and covers a whole multitude of reasons such as escalating costs, lack of dynamism and new ideas, service-related problems, individual relationship failures at operational, commercial, or executive level. Once the relationship is failing, either perceived or actual, often the only way to rectify is to undertake an ITT process.
Capability/Strategic Misalignment – This is where the client and the contractor are on different trajectories, and what once was a good fit is no longer the case. Examples of this could be where a UK operation wishes to replicate an operation in Europe, and the existing incumbent does not have the expertise or coverage to run a European operation. The client does not want to split the operation between contractors, so a new partner needs to be found. Other examples could be lack of a parcel or pallet network option, regional vs national coverage, lack of industry expertise following a merger or acquisition, etc.
All of the above are scenarios that Davies & Robson have carefully navigated to a successful conclusion for many clients from differing industries over the past few years. Outsourcing is a core competency of our business, so if you are a business that can relate and recognise any of the issues above, and you wish to discuss how moving to a new logistics partner may work for you, then give us a call for an informal discussion.