2021 promises to be the year in which shippers can rebuild from a devastating 2020 and reconstitute their supply chains to make them more resilient to shocks like the Covid-19 pandemic.
Throughout 2020 Ti ran a series of polls and surveys of shippers to help better understand how they were managing the challenges posed by the pandemic and to identify their plans for the future. The surveys asked a variety of key questions about the strategic choices shippers would make about sourcing, modal choices, freight purchasing methods, the use of assets, business planning, logistics technology and outsourcing in the future. When drilling down into shippers’ plans for outsourcing the surveys found that, on the whole, most shippers were not planning to outsource more of their supply chain functions in the future. In fact, just 17% of shippers wanted to outsource more physical operations and only 10% wanted to outsource supply chain management functions. More significantly, 43% of shippers plan to enlarge the pool of logistics partners they use for the services they do outsource to.
What are the benefits of shippers outsourcing to an enlarged pool of suppliers driving this trend?
The long term trend for shippers to outsource their logistics functions has been driven by seven key motivations, outlined by Jo Godsmark and Gwynne Richards in their 2020 book, The Logistics Outsourcing Handbook. The seven motivations are:
- They have poor internal logistics capabilities
- They need to reduce asset capital
- They need greater flexibility and scalability
- They want to transfer/manage risk
- They want to concentrate on core competencies
- They need to reduce costs
- They want to access new technology
In normal times any combination of these motivations could lead to an outsourcing decision but the experience of the pandemic has highlighted the importance of managing risk, making it a central consideration in the outsourcing decision making process. The events of 2020 have also underlined the imperative of flexibility in response to risks when they become realities and the necessity of good technology to enable the management of supply chain disruption.
By outsourcing to a larger group of logistics partners the 43% of shippers looking to diversify their supplier pool may reasonably expect to improve their position on the three key considerations of risk management, flexibility and access to technology, which are all growing in importance. In theory, more suppliers should grant shippers more flexibility and greater access to capacity, enabling them to move freight even in a capacity crunch like the one seen over the course of the pandemic. More suppliers should also expose shippers to more leading technologies, giving them additional tools to manage disruption. However, simply having more logistics partners doesn’t guarantee that these benefits will be conferred. To ensure shippers get the benefits they are seeking they must also select the right logistics partners.
Selecting the right LSPs
Selecting the right logistics partners is a complex process demanding a significant investment of time and resources that requires shippers to specify their logistics needs, identify potential suppliers and validate their capabilities, all before even beginning the RFI and RFQ processes. Many shippers rely on the expertise of their logistics procurement teams to help find the right LSPs, but as more shippers seek to diversify their supplier pools they will often need to reach outside of this knowledge base, significantly increasing the need for research in the early stages of the outsourcing process. Enlarging any supplier pool is also likely to increase the number of tenders it is necessary to run, making any resources that can be saved in the process even more valuable.
For shippers to see a real benefit from enlarging their pool of logistics partners it is crucial that they set themselves up with the tools and resources to find the right suppliers and execute the tender process well, otherwise, the potential benefits may well be lost.
If you are looking to enlarge your pool of logistics partners in 2021 then take a look at Ti’s supply chain intelligence tools designed to help you find the right logistics partner www.supplychainleaders.com
Source: Transport Intelligence, January 7, 2021
Author: Transport Intelligence