YOUR INSTITUTE
Logistics outsourcing:
changing attitudes?
Outsourcing of logistics services has become a
popular and effective strategy for many companies.
The process of contracting with other
businesses to handle various aspects of logistics
has provided many arguments for the benefits
and restraints that logistics outsourcing has.
Are attitudes towards logistics outsourcing
in the UK changing, and if so, how?
Do the suppliers of logistics outsourcing
services view its benefits and value
proposition differently from those
businesses that purchase logistics
outsourcing services?
If attitudes towards logistics outsourcing
are changing, and if buyers and sellers
do view logistics outsourcing’s value
proposition differently, then what
precisely lies behind these changes and
differences?
Above: Without the specialist skills of logistics
outsourcing, the world’s supply chains would
operate less effectively
AUTHORS
Dr Soroosh Sam Saghiri, BingKai
Huang, Dr Richard Gibson FCILT
and Jo Godsmark FCILT
FURTHER INFORMATION
See page 48
SECTOR HIGHLIGHTS
Research carried out by the Institute’s
Outsourcing & Procurement Forum and
Cranfield School of Management has
sought to determine the answers to such
questions. The research combined an
analysis of CILT’s annual logistics
outsourcing questionnaires over the
four-year period (2010–13) with
semi-structured interviews probing the
reasons behind some of the trends,
differences and perceptions identified
in the survey data.
Encompassing the views of a broad
cross-section of businesses with
exposure to logistics outsourcing the
Forums annual surveys, with around
150–200 responses each year during
2010-2013, are a unique window into
contemporary industry thinking and
practices across a wide range of
logistics-specific issues.
Each year’s data provides a snapshot
view of the balance of opinion relating to
each issue; taking several such surveys
44 FOCUS DECEMBER 2014
together, provides the added dimension
of time, which enables broad trends to
be discerned.
The result is not only a fascinating
glimpse into the attitudes and
perceptions prevailing in the logistics
outsourcing marketplace during 2014,
but also an intriguing insight into
how those attitudes and perceptions
had evolved over the previous four
years – during which the UK logistics
outsourcing sector was recovering from
the steepest economic recession since
the 1930s.
Degree of logistics outsourcing
Across each of the four years’ survey
respondents have been asked: ‘What
percentage of the following logistics
activities do you currently outsource?’
In each case, the degree of logistics
outsourcing could be categorised into
four discrete levels of indicative usage:
‘frequently use logistics outsourcing’,
corresponding to outsourcing 81–100%
of the respective activity: ‘often use
logistics outsourcing’ (41–80%): ‘less
frequently use logistics outsourcing’
(1–40%): and ‘never use logistics
outsourcing’ (0%).
Put another way, respondents to the
question can be viewed as high-level
users of the respective logistics
outsourcing activity, medium-level users,
low-level users or very-low-level users.
Table 1 shows how levels of usage have changed over the four
years. The outsourcing of back-office tasks has exhibited a net
decrease, while the order management process showed a
decrease and then an increase. The outsourcing of supplier
management, returns management, e-fulfilment, procurement
and warehousing, is unchanged over the period. Finally, the
outsourcing of transport, reverse logistics and IT has increased.
The increase in the use of logistics outsourcing in transport was
especially notable, rising over the period from ‘high’ to ‘very high’.
Preferences in logistics outsourcing contracts
Respondents were also asked a series of questions relating
to issues such as contract length, open-book vs closed-book
contracts, shared-user facilities, the use of a 4PL and the
number of 3PLs.
Figure 1: Industry participants’ impressions regarding the length
of logistics outsourcing contracts
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2010
Table 2 summarises the main findings; in terms of the logistics
outsourcing of transport activities some clear trends were
discernible, most notably a move away from single sourcing.
Over the four years in question, the use of 4PL logistics
outsourcing providers has decreased from a medium level of
use, to what is now a low level of use. Likewise, the use of
more than one 3PL rose from ‘high’ to ‘very high’.
On the question of open-book vs closed-book contracts,
open-book fell out of favour, while closed-book gained in
favour, but in neither case was the trend an unbroken rise or fall.
In short, it appears that the sector seems happy with a hybrid
approach to open-book and closed-book contracts, adopting
each on its own merits for particular situations.
In terms of the logistics outsourcing of warehouse activities,
a similar fall was seen in the use of 4PL logistics outsourcing
providers over the four years in question, with reported usage
falling from ‘low’ to ‘very low’ over the period; in percentage
terms, a reduction from 20% in 2010 to approximately 7%
in 2013.
Similarly, the use of a single 3PL for warehousing activities
increased from ‘high’ to ‘very high’; 64% of respondents
reporting the use of a single 3PL in 2013 compared to 45%
in 2010. In contrast, the use of more than a single 3PL
dropped slightly, falling from ‘medium’ to ‘low’, from 35%
in 2010 to 30% in 2013.
The same hybrid approach to open-book vs closed-book
contracts was seen over the period, with closed-book falling
out of favour, while open-book gained in favour: a complete
reversal of the situation in respect to the logistics outsourcing
of transport activities. Again, in neither case was the trend an
unbroken rise or fall.
Similarly, no clear unbroken trend has emerged over the
four-year period with respect to shared-user facilities vs
dedicated facilities. It seems likely that this reflects a pragmatic
view by buyers and sellers of logistics outsourcing activities
that each has its merits within particular situations.
Finally, respondents were asked about their preferences with
regards to the length of logistics outsourcing contracts related
to transport and warehousing. As Figure 1 shows, industry
participants’ impressions regarding the length of logistics
outsourcing contracts show a clear trend over the four-year
period. Simply put, the industry consensus is that logistics
outsourcing contracts are getting shorter.
Increased
2011
2012
2013
Decreased
Figure 2: Changing perspectives on the customer-3PL relationship
100%
80%
60%
40%
20%
0%
2010
Commodity provider
Trusted advisor
2011
2012
2013
Supply chain partner
Other
Figure 3: Industry views on the customer-3PL relationship
100%
80%
60%
40%
20%
0%
Manufacture
Commodity provider
Trusted advisor
Logistics service
provider
Retailer/
Wholesales/Distributor
Supply chain partner
Other
www.ciltuk.org.uk 45
YOUR INSTITUTE LOGISTICS OUTSOURCING: CHANGING ATTITUDES?
Figure 4: Top reasons for the non-renewal of outsourcing contracts
100%
80%
60%
That said, buyers and sellers of logistics outsourcing activities
have different perspectives on this overall trend. A majority
(56%) of manufacturers believe that the length of outsourcing
contracts has actually increased. A majority of LSPs, on the
other hand, together with retailers/wholesalers/distributors,
hold the view that the length of outsourcing contracts has
decreased over the past few years, with 58% of LSPs taking this
view, along with 61% of the retailers/wholesalers/distributors
who responded.
40%
Customer-3PL relationship management
20%
0%
2010
2011
2012
Others
Reduced trust
Lack of innovation and
technical improvements
Flexible requirements
Poor service and performance
High cost
Lack of innovation and
High cost
Figure 5: Different
attitudes
between clients and 3PLs to innovation
technical
improvements
100%
80%
Participants were also asked a series of questions designed to
probe the calibre of relationships within the industry, specifically
in the context of relationships between buyers of logistics
outsourcing services and the 3PLs providing them.
As Figure 2 shows, it seems that the nature of that relationship
is undergoing a period of evolution. In 2010, clients mainly
regarded their suppliers as a supply chain partner, but over
the past few years, the percentage regarding their logistics
outsourcing suppliers in this way has decreased from 67% in
2010 to 58% in 2013. The percentage seeing their logistics
outsourcing suppliers as commodity providers has increased
from 19% in 2010 to 26% in 2013.
Furthermore, Figure 3 shows that the perception of the
relationships between 3PLs and the customer varies according
to the industry role of the respondent. The majority of
manufacturers and retailers/wholesalers/distributors saw
logistics outsourcing providers as supply chain partners.
60%
40%
20%
0%
Manufacture
Logistics service
provider
Essential
Not important
Important
Very important
Retailer/
Wholesales/Distributor
The highest percentage of respondents who saw logistics
outsourcing providers as commodity sources was found
among the providers themselves. The research also probed the
problems experienced within customer-3PL relationships.
Customers were characterised by failings such as reacting too
severely to the first quality breakdown, misinterpretation of
service agreements and metrics, and the delaying of or failing to
finalise contracts.
On the other hand, suppliers were seen by customers as failing
to manage expectations, making last-minute changes, being
insufficiently proactive in terms of communication and failing
to adjust processes – and retrain staff – as operational changes
and quality issues arose; see Table 3.
Above: The logistics outsourcing profession delivers significant cost savings and
efficiencies to its clients
46 FOCUS DECEMBER 2014
Finally, this part of the research looked at the major reasons for
the non-renewal of logistics outsourcing contracts. As Figure 4
shows, at the beginning of the four-year period, 40% of
respondents cited the levels of service that had been provided
as the most popular reason for the non-renewal of an
outsourcing contract. By 2012, the continuing volatility of the
global business environment had brought about a change in
sentiment, with costs coming to the fore as a reason for
non-renewal – this was cited by 32% of respondents. In
contrast, just 12% cited the importance of service as a reason
for non-renewal had reduced markedly. Most notably over the
period, the role played by technology as a factor in the
non-renewal of contracts, accounting for 20% of non-renewals
in 2012, was double the percentage that was cited in 2010.
Table 1: Degree of logistics outsourcing
Below: Clear trends were visible in terms of the logistics outsourcing of transport activities
Outsourced operations
Past
Now
Trend
Transport
High
Very high
+ Increased
Warehousing
Low
Low
Unchanged
Reverse logistics
Low
Medium
+ Increased
IT
Low
Medium
+ Increased
Procurement
Low
Low
Unchanged
Order processing
Low
Low
+–Decreased and then
increased
E-fulfilment
Medium
Medium
Unchanged
Technology and innovation in logistics outsourcing
It is appropriate to turn to the role played by technology and
innovation in general within a logistics outsourcing context.
Overall, innovation is clearly prized; over 90% of respondents
agreed that innovation in the arena of logistics outsourcing is
either ‘important’, ‘very important’, or ‘essential’ – a level that
has only changed a little over the 2010–13 period.
Transport contract
Warehousing contract
What is even more striking is the divergence of opinion among
the three logistics outsourcing communities of manufacturers,
LSPs, and retailers/wholesalers/distributors. As Figure 5
highlights, all LSPs see innovation with some degree of
importance, with the largest proportion (48%) describing the
ability to innovate as ‘essential’. In contrast, among their
clients in manufacturing and retailing/distribution/wholesaling,
smaller proportions of respondents see it as either ‘essential’
or ‘very important’, with a larger proportion regarding it as
merely ‘important’.
Medium
Low
– Decreased
Returns management
Medium
Medium
Unchanged
Supplier management
Low
Low
Unchanged
Table 2: Preferences in logistics outsourcing contracts
Moreover, what change there has been over the period can
been seen in the shrinking of the proportion of respondents
who view innovation as ‘important’, and the growth in the
proportion of respondents seeing it as ‘very important’.
Across the four-year period, the percentage of respondents
declaring innovation to be ‘very important’ rose from 32%
in 2010 to 50% in 2013.
Back-office tasks
Logistics outsourcing
activities
Past
Now
Trend
Use of 4PL
Medium
Low
– Decreased
Use of one single 3PL
Medium
Medium
Unchanged
Use of more than one 3PL
High
Very high
+ Increased
Use of shared-user
High
High
Unchanged
Use of dedicated operation
Low
Low
Unchanged
Use of open-book
Low
Medium
– + Decreased and
then increased
Use of closed-book
(volume related)
High
Medium
+– Increased and
then decreased
Use of 4PL
Low
Very low
– Decreased
Use of one single 3PL
High
Very high
+ Increased
Use of more than one 3PL
Medium
Low
– Decreased
Use of shared- user
Medium
Medium
–+ Decreased and
then increased
Use of dedicated operation
Medium
Medium
+– Increased and
then decreased
Use of open-book
Medium
High
–+ Decreased and
then increased
Use of closed-book
Medium
Low
+– Increased and
then decreased
Table 3: Problems experienced in customer-3PL relationships
Above: Research carried out by Cranfield School of Management investigates the
changing attitudes to logistics outsourcing
Customer initiated problems
Supplier initiated problems
Unrealistic goals
Failure to manage expectations
Delaying or failing to finalise the contract
Making last-minute decision and
changes
Poor decision-making mechanisms
Not having executive support
Misinterpretation of the service
agreements and the associated metrics
Not being proactive with
communication
Lack of trust and reacting too severely
to the first quality breakdown
Failing to adjust processes and
retrain staff as operational changes
and quality issue arise
www.ciltuk.org.uk 47
YOUR INSTITUTE LOGISTICS OUTSOURCING: CHANGING ATTITUDES?
Conclusion
As a major participant in the global
economy, the logistics outsourcing
profession delivers significant cost savings
and efficiencies to its clients in the
manufacturing and retailing/distribution/
wholesaling industries.
The use of a single 3PL for warehousing activities
increased from ‘high’ to ‘very high’
Simply put, without the economies of
scale and specialist skills of logistics
outsourcing, the world’s supply chains
would operate less effectively and the
vital goods that they deliver would be
more expensive.
However, this research has demonstrated
three major outcomes:
• The gaps in responses between LSP
respondents and their customers show
that there is an opportunity for users of
logistics services to share their goals
and priorities more closely with their
outsourced partners
• LSPs need to be aware that the
selection and performance criteria
against which they will be judged
change over time based on market
conditions and industry trends; this is
true of current contracts, as well as
new business
Member for CILT’s London Region.
Email: s.saghiri@cranfield.ac.uk
BingKai Huang is an MSc Logistics and
Supply Chain Management student at
Cranfield School of Management.
• IT and innovation have become hygiene
factors in this industry and LSPs need to
respond accordingly
About the authors
Dr Soroosh (Sam) Saghiri is a senior
Research Fellow, Centre for Logistics
& Supply Chain Management, Cranfield
School of Management, academic
representative in CILT’s Outsourcing
& Procurement Forum and Committee
Dr Richard Gibson FCILT is a seasoned
operator currently working within global
supply chains. His research interests
include logistics service provision, supply
chain risk management and the
deployment of inventory management
tools within oil and gas supply chains.
Email: richard.gibson@idrislogistics.co.uk
Jo Godsmark FCILT is a Director, Labyrinth
Logistics Consulting Limited, specialising
in logistics outsourcing, logistics strategy
and network design. She is also Chair,
Outsourcing & Procurement
Forum, and a trustee of Transaid.
Email: jogodsmark@labyrinthsolutions.co.uk
About LSCM
The Centre for Logistics & Supply Chain
Management, Cranfield School of
Management, is one of Europe’s largest
centres dedicated to research and
education in logistics and supply chain
management. It performs a variety of
research, from long-term, research
council-funded projects that focus on
the generation of new knowledge to
dedicated, industrially funded work
that addresses specific needs.
Further information, website:
www.som.cranfield.ac.uk/som/lscm
FURTHER INFORMATION
If you are interested in the issues and topics raised in this article, why not join our Outsourcing &
Procurement Forum? The Forum produces white papers and reports and sets up events and workshops
on relevant subjects, and supports CILT regional groups by providing speakers and workshops on the
topic of logistics outsourcing. Further information, website:
www.ciltuk.org.uk/AboutUs/ProfessionalSectorsForums/Forums/OutsourcingProcurement.aspx
FURTHER RESOURCES
Following the success of the first event on Strategic Planning in 2014, the Outsourcing & Procurement
Forum’s 2015 events will be focusing on the next stage of the lifecycle: procurement and implementation.
The first of these will be: Outsourcing Life Cycle Master Class: Step 2a – Procurement & Contract, 5th
February, 09.00–14.00 hrs, Wright Hassall, Leamington Spa, and will include topics and discussion points
relating to procurement and contracts. As before, the event will be a mixture of presentations and
expert-led discussion workshops. Places are limited. To book, email: ana.walker@ciltuk.org.uk
48 FOCUS DECEMBER 2014