Operations management assignment Online : Logistics outsourcing process in Australia
Outsourcing of logistics process will bring down the percentage of broken glasses and will result in faster delivery than Australia Post
Five percent of the glassware is broken on arrival at the retailer and a lot of time is spent in dealing with returns and refunds. There are around 1000 retailers in Australia selling glassware imported by us. This makes the whole process of returns and refunds more complicated. Besides monetary costs there are also psychic costs involved.
Glassware breaks in the transit process as it is taken from the warehouse to the retailers. The percentage of broken glassware delivered to retailers can be cut down significantly by improving packaging and transportation process. However it would be better if the logistics process is outsourced to a third party whose core competency lies in delivering glassware with minimum breakage.
The third party to whom the logistics contract is given should specify the minimum percentage of crystal wine glasses which are likely to be broken down in the delivery process. If the percentage of those broken down exceeds this minimum percentage, then the logistics contractor is liable to reimburse the retailer.
There are many logistics contractors who now guarantee that they can deliver items like wine glasses without any wastage or breakage. In case of any actual losses the loss is borne by the logistics contractor.
While making the decision on outsourcing to a third party or not we need to ask this question to ourselves: “What actually is our core competency or core business activity? (David Jacoby ,2009)”
The answer to this question is that our core business activity is to import crystal wine glasses from Czech Republic. Our core competency lies in importing such crystal wine glasses which find strong demand among customers.
Logistics is not our core competency or core business activity. So it won’t be a good idea to invest time and money in developing our own logistics processes. Currently also we use Australia Post to deliver the glassware from a centralized warehouse in Melbourne. This whole process is very costly and slow.
Australia Post’s core competency does not lie in transporting and delivering glassware like crystal wine glasses. No wonder then that 5 % of the crystal glasses break down before reaching the retailers.
We need to find a logistics partner whose core competency lies in delivery of glassware. We should outsource the logistics process to this partner. While deciding on the logistics partner a cost-benefit analysis needs to be done. The costs of outsourcing the logistics process to a third party should be estimated. This should be compared with the estimated benefits. If the benefits exceed the costs then a positive decision on outsourcing the logistics process to a third party should be taken.
In our opinion the benefits of outsourcing the logistics process to a third party will far exceed the costs. Outsourcing will bring down the overall costs because it will cut down wastage because of broken glasses. We have to refund to the retailer the costs of broken wine glasses. These refunds currently account for 5 % of our total revenues. This ultimately has a very adverse affect on our profitability and bottom-line. Our reputation in the minds of the retailers is also damaged. If we can cut down the wastage and expenditure resulting from broken glasses then it will give up a boost to our profitability and reputation.
A competent logistics partner will definitely bring down the percentage of glasses broken down in the delivery process. The logistics partner’s core competency will be in logistics management of glassware. It will also take all precautions to ensure safe delivery because it will be liable to reimburse the costs of broken glasses to us. Our crystal wine glasses are currently delivered by Australia Post. It bears no liability for the glasses that are damaged in the transportation process. So it has no incentive for taking steps so that the damage to glasses is minimized.
Another advantage of outsourcing the logistics process to a third party is that we can focus more on our core activities, once we are free from the rigmarole involved in the entire process. A lot of time is currently spent in dealing with returns and refunds. There are about 1000 retailers. The broken glasses are returned by the retailers. The costs of these broken glasses are ascertained and then the refunds are made to the retailers. The entire process requires involvement of human resource personnel, time and energy. A significant amount of resources will be released if we outsource the logistics process to a third party. The resources released can be put to use in our core activities like handling more volume in terms of warehousing and distribution. Outsourcing the logistics process to a third party will greatly improve our distribution.
Retailers expect faster delivery of crystal wine glasses that they have ordered. The delivery through Australia Post is a slow and time consuming process. A third party logistics partner will reduce delivery time. This will result in higher retailer satisfaction.
The above analysis reveals that two specific benefits of outsourcing the logistics process to a third party are:
i) The percentage of glassware broken on arrival at the retailer will come down significantly or may even be totally eliminated. In case of any losses due to breakage the logistics partner will be liable to reimburse us.
ii) It will make the entire delivery process faster. Retailers expect faster delivery.
iii) By minimizing returns and refunds it will increase our profitability and revenues.
It is important to point this out here that the above benefits can be realized only if the logistics process is outsourced to a right partner. Finding a suitable logistics partner may be a challenge. And strategic alliances need to be nurtured with this partner so that the logistics management process becomes more efficient and effective.
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