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Seven simple outsourcing rules for logistics companies
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Logistics companies can gain significant cost savings value by leveraging BPO. For example, approximately 60 percent of a logistics company’s operating costs are attributable to customer service. Of this, roughly 60 percent is back-office document processing or phone-based customer contact. Outsourcing these processes to a logistics industry-savvy service provider can deliver cost savings of 40 – 50 percent
BPO delivers benefits which extend far beyond cost savings, including moving costs from fixed to variable, maintaining focus on the customer and retaining them in the face of operating cost reductions, placing focus on knowledge rather than intuition to increase revenue, consolidating delivery operations to standardize business processes, getting even more out of shared services costs and delivering continuous improvement. Logistics companies which have included BPO in their corporate strategy are better poised to weather this economic storm which threatens to sweep even the most established players away.
- Ensure BPO is a CEO priority Sponsorship for critical initiatives such as BPO must come from the very top. Only the CEO can deliver the message. Otherwise, the imperative for outsourcing is not taken very seriously, and management sees implementation as optional, easily finding ways to opt out, with arguments ranging from “outsourcing never works, we’ve tried it,” to “the process is too critical to outsource” to “I have to implement new systems first”. This is a decision for the CEO and no half measures will work. BPO succeeds for logistics companies when there is clear visibility of the CEO behind the wheel.
- Approach outsourcing with an open mind The BPO industry has moved well beyond delivery of volume-based voice and data work into highly complex industry and insight processes – think freight audit, tariff filing and maintenance, claims management, billing, exceptions management and marketing analytics. Therefore, smart companies collaborate with providers to determine ‘the art of the possible.’ They start the outsourcing discussion by saying, “This is where we need to get to, so how do we get there?”. In the logistics industry, there are a number of companies that are improving their operating ratios by moving processes offshore, either to captive operations or to third-party providers. Ocean carriers including Maersk, APL, Hapag-Lloyd, NYK, MOL and CSAV initially pioneered the move offshore, by setting up delivery centers in India and other lower cost countries such as Malaysia and China. And third-party logistics companies such as FedEx, Exel, Penske, Ryder, Yellow and Bax Global are taking the next step by outsourcing to external BPO providers. Processes delivered offshore include not only rules-based work such as export documentation, and time sensitive shipment updates and tracking, but also more complex finance processes such as accounts receivable and consolidation of books. A typical business case for logistics companies delivers annual savings in the range of $1 million per 50 FTEs when a documentation process is moved to an offshore BPO provider, with a payback period for the initial investment, necessary for knowledge transfer and transition, of less than 9 to 12 months.
- Keep it simple Speed to cost reduction with no diminution of quality should be the first and foremost objective of BPO as a tool. Keeping it simple means being realistic about the aspirations for the program and focusing only on obtaining the benefits that truly matter now. Thus, logistics companies should strongly consider outsourcing their simplest, most repetitive documentation processes such as bill of lading and freight cargo receipt processing, billing, airway bill manifesting, driver logs entry, and freight bill capture and audit on an ‘as is’ basis. A BPO service provider with expertise in these areas can deliver cost savings for their clients in as little as 90 days.A leading European Non-Vessel Operating Common Carrier (NVOCC) looked to reduce its mounting staff costs in Europe, Latin America and Asia. WNS’ deep logistics industry knowledge contributed to a solution which standardized and migrated the NVOCC’s entire import bill of lading and import manifest preparation processes among all its locations to one of WNS’ offshore delivery centers, resulting in a 50 percent cost reduction. Further, the standardized processing environment created for them has dramatically improved information dissemination among its network of offices. The NVOCC is now experiencing minimal rework when moving shipments around the globe, and negligible to no customs delays or fines.
- Move fast Companies can quickly put in place outsourcing programs by mandating that aggressive timelines are a must. Truth is, there is no change without urgency imposing deadlines for the development and implementation of a roadmap including scope, provider selection and transition will mobilize the organization. For example, when a multibillion dollar North American shipping company decided to move its export documentation process in Europe and the U.S. to India, the CEO set an internal deadline of reducing onshore headcount by December 31st of that year to ensure that lower operating costs kicked in as of the start of the new fiscal year. Establishing clear deadlines, especially when mandated by the CEO, gets the entire organization focused and moving quickly to reap the benefits.
- Develop a realistic deployment plan Even when outsourcing is being implemented for cost savings, many companies push for or buy into an unrealistic transition roadmap in their haste to cut out more cost. And when the first failure occurs because processes cannot be thoroughly documented, the network is not ready, or work shadowing is insufficient, the naysayers come out in force. A deployment strategy that builds up steam over time after the success of initial phases is far more likely to meet objectives. For example, due to the geographically dispersed nature of the logistics industry, a key initial consideration is which operating regions are better suited to consolidation via outsourcing benefits than othersA global Top 3 express and logistics company had to decrease the expenses associated with its mission-critical airway bill manifesting process. With specialist operations centers serving the logistics industry, WNS was able to establish a 350-person operation for the company in less than 90 days and is handling an annual volume of over 9 million airway bills. WNS not only reduced airway bill manifesting expenses by 60 percent, but significantly increased the accuracy of data input to 99+ percent. As the delivery is priced on a unit transaction basis, the client gained the benefit of variable cost pricing, with WNS assuming the volume risk.
- Insist on alignment and knowledge Partnering with a BPO provider who understands you are the client and will align with your ways of working – rather than impose its own – is vital. Alignment refers to understanding the client’s values and accordingly adjusting its working style, designing its deliverables to support the client’s needs and having the flexibility to meet ever changing business needs.
- Debit budgets in advance This little trick obtains commitment where it counts – in the budget process. Building BPO savings into the current year’s budget in advance ensures managers have no excuse but to be committed to the implementation of the BPO program or find some other way to get the cost out fast. Truth be told, short of cutting staff to the bone, there is rarely another way. This is particularly true in cost center functions such as documentation, freight audit, driver logs, claims and finance and accounting. A BPO provider with logistics domain expertise knows the extent of cost savings attainable for outsourced processes and can work with the client to craft a scope of services specifically designed to achieve budget goals.
The 2018 22nd Annual Third-Party Logistics (3PL) Study examines the global outsourced marketplace and leading trends for shippers and 3PLs in the logistics industry.
This year’s study shows the continuation of two trends: the importance of the relationship between Shippers and 3PLs as well as the importance of adapting to ever-changing technologies, including blockchain and automation. The study shows a large increase in the percentage of shippers seeking information technology (IT) services from 3PLs, with 27 percent indicating outsourcing of IT services in the 2018 study compared to 17 percent in the previous year.
The special topics in this year’s report are Blockchain, Automation/Digitization, the Logistics Talent Revolution required for Shippers and 3PLs to drive technology advancements and finally Risk/Resilience in the Shipper/3PL relationship.