We went live with our new transportation management software site, eRoutingGuide this week. Coinciding with that, I made an appearance on the popular live web show, This Week in Startups (http://www.thisweekin.com/). I was part of the "Ask Jason" segment - looking for some ideas for finding an online community of logistics professionals. Here is a link to the show you can view on YouTube:
http://www.youtube.com/watch?v=SqSaek5yB1s
On August 13th I will be on another start up program http://www.asable.com/ talking about eRoutingGuide. Check out their site as well.
I have a few more appearances lined up in the next few weeks to talk about entrepreneurship with a focus on order fulfillment and other logistics services.
Monday, July 26, 2010
Tuesday, July 6, 2010
Fuel Surcharges make up 40% of your logistics management costs - know how they work
Fuel Surcharges make up 40% of your logistics costs – you need to know how they work
Around 10 years ago is when fuel surcharges became ubiquitous. Prior to that time, the cost of fuel was always there of course, but in those days shippers essentially paid for fuel as a part of their linehaul rates. The market changes in fuel costs were for the trucking companies to worry about. The impact of fuel was something left to maybe negotiate at year’s end, or perhaps as part of a contract renewal. The shipper’s perspective was that managing fuel costs were a trucking company’s problem to understand and account for. Since that time, the burden of dealing with market changes in fuel costs has shifted from the trucking companies to shippers.
With fuel surcharge making up 30-40% of a typical company’s logistics costs it important for managers in both operations and finance to know how fuel surcharges are calculated and how the diesel market affects their freight spend. These days shippers are directly exposed to the potentially budget crushing fluctuations in fuel costs and the curiously structured surcharge matrices. Theoretically the fuel surcharge tables that most carriers use are a direct representation of actual fuel costs to calculate the fuel surcharge but I have yet to be given an explanation that makes me feel comfortable that the matrices are more than just an extension of a carrier’s line haul costs. This is not to say that fuel costs are not a major cost factor for carriers, I just disagree that the tables represent the impact of fuel accurately for a carrier from an operating perspective. There is too great of a difference from carrier to carrier for it to be a true representation. This tells me there is a “fudge” factor built into the numbers allowing carriers to hide operating costs beyond just fuel in the fuel surcharge matrix.
An ecommerce company shipping from a order fulfillment operation? For small package shipping, companies are at the mercy of UPS and Fed Ex for not just air and ground services and pricing, but to both company’s own fuel surcharge tables. There is not a lot to understand about small package fuel surcharge other than to know you have to think of the cost as an extension of their pricing and pay attention as the fuel prices change – for better or worse.
For truckload and LTL shipping, you’ll see fuel surcharge matrices calculated as both a per mile and a percentage of line haul cost basis. In both cases – the fuel surcharge table will be based on the US Governments Diesel Fuel Index (posted on the DOE website). It is updated weekly and is also calculated on a regional and national basis. Depending on the footprint of your trucking company either type of fuel index could apply. The “per mile” basis is simply calculated by adding the per mile charge on top of your line haul rate, then multiplied by the number of miles shipped. The “percentage” type surcharge takes the cost of the shipment (for LTL, the discounted tariff rate and for TL, the linehaul portion) and adds the percentage of cost derived from the table on to that. Just like you audit line haul costs on freight invoices, it is also important to audit fuel surcharges.
Fuel matrices are generally built to adjust with every $.05 increase or decrease in the DOE diesel fuel index and are effective for any shipments tendered in a given week’s period of time.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Startup Order Fulfillment and Social Media for Logistics
Around 10 years ago is when fuel surcharges became ubiquitous. Prior to that time, the cost of fuel was always there of course, but in those days shippers essentially paid for fuel as a part of their linehaul rates. The market changes in fuel costs were for the trucking companies to worry about. The impact of fuel was something left to maybe negotiate at year’s end, or perhaps as part of a contract renewal. The shipper’s perspective was that managing fuel costs were a trucking company’s problem to understand and account for. Since that time, the burden of dealing with market changes in fuel costs has shifted from the trucking companies to shippers.
With fuel surcharge making up 30-40% of a typical company’s logistics costs it important for managers in both operations and finance to know how fuel surcharges are calculated and how the diesel market affects their freight spend. These days shippers are directly exposed to the potentially budget crushing fluctuations in fuel costs and the curiously structured surcharge matrices. Theoretically the fuel surcharge tables that most carriers use are a direct representation of actual fuel costs to calculate the fuel surcharge but I have yet to be given an explanation that makes me feel comfortable that the matrices are more than just an extension of a carrier’s line haul costs. This is not to say that fuel costs are not a major cost factor for carriers, I just disagree that the tables represent the impact of fuel accurately for a carrier from an operating perspective. There is too great of a difference from carrier to carrier for it to be a true representation. This tells me there is a “fudge” factor built into the numbers allowing carriers to hide operating costs beyond just fuel in the fuel surcharge matrix.
An ecommerce company shipping from a order fulfillment operation? For small package shipping, companies are at the mercy of UPS and Fed Ex for not just air and ground services and pricing, but to both company’s own fuel surcharge tables. There is not a lot to understand about small package fuel surcharge other than to know you have to think of the cost as an extension of their pricing and pay attention as the fuel prices change – for better or worse.
For truckload and LTL shipping, you’ll see fuel surcharge matrices calculated as both a per mile and a percentage of line haul cost basis. In both cases – the fuel surcharge table will be based on the US Governments Diesel Fuel Index (posted on the DOE website). It is updated weekly and is also calculated on a regional and national basis. Depending on the footprint of your trucking company either type of fuel index could apply. The “per mile” basis is simply calculated by adding the per mile charge on top of your line haul rate, then multiplied by the number of miles shipped. The “percentage” type surcharge takes the cost of the shipment (for LTL, the discounted tariff rate and for TL, the linehaul portion) and adds the percentage of cost derived from the table on to that. Just like you audit line haul costs on freight invoices, it is also important to audit fuel surcharges.
Fuel matrices are generally built to adjust with every $.05 increase or decrease in the DOE diesel fuel index and are effective for any shipments tendered in a given week’s period of time.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Startup Order Fulfillment and Social Media for Logistics
Tuesday, June 29, 2010
Eco-Friendly Packing Materials For Ecommerce Order Fulfillment
The most ubiquitous packaging materials at ecommerce order fulfillment operations are of course bubble wrap and peanuts. The pros and cons of both are well documented, but the most important thing to know is they are typically made from plastics (as in oil) and are not bio-degradable. With the amount of bubble wrap and peanuts used around the world each day the problem is pretty self evident.
These products are made from some pretty nasty stuff Polyethylene, Polystyrene and Polyurethane (which consists of all sorts of harsh chemicals including acetone, methylene chloride and fluorocarbons).
Aside from the toxic chemicals used with most plastic based packing materials and the huge energy resources that going into creating them; the amount of landfill taken up after they are discarded is significant.
Here are some ideas for alternative packaging options to consider using when preparing your customer orders for shipment.
Soy based expandable foam products are a more eco-friendly option. Derived from soy, and therefore renewable and biodegradable, this product conforms precisely to the shape of your products. This maximizes protection by minimizing movement on the inside of the carton. The product is also very light weight, reducing the additional shipping expense of heavier materials. Realistically expandable foam is best for larger operations due to the space the specialized equipment and process will require.
Consider using old newspapers as they can also be a good option as well. Shredded or balled up newspaper has decent cushioning ability. My opinion is that shredded paper has a neat look in the box and adds some “eco-cred” to your products. Aaesthetically the balled up news print leave a little to be desired, and there is no efficient way to “ball up” enough paper to keep up with a high volume fulfillment operation. Shredded paper, although requiring an extra step (to shred) does led itself to a higher volume set up.
Again, it’s not as pretty, but old cardboard boxes can be cut into strips and then rolled tightly. Place the rolls vertically into the packing box around the item in the box, the rolls will then expand providing a cushion. Similar to newsprint, if some care is taken up front to cut or prepare the boxes neatly the end product could work in a way that looks good to your customers.
Reusing something like paper or cardboard for packaging is always preferable to recycling, and of course, MUCH better than throwing those items away. Cushion packaging is sold that is made from one hundred percent post consumer waste paper – give that a try if you don’t like the look of used newspapers.
Biodegradable packing peanuts are available, made from grain sorghum and corn starch. For environmentally friendly soft foam in rolls, starch-based products such as GreenCell have the added bonus of being anti-static which is great for cushioning computer parts and electronic equipment.
For wrapping and packaging inside the box, use or reuse something. And the same goes for the cartons you are using - go for boxes made from recycled cardboard. The options these days for recycled corrugated boxes are very diverse and any place selling boxes will likely provide these product options as well .
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
These products are made from some pretty nasty stuff Polyethylene, Polystyrene and Polyurethane (which consists of all sorts of harsh chemicals including acetone, methylene chloride and fluorocarbons).
Aside from the toxic chemicals used with most plastic based packing materials and the huge energy resources that going into creating them; the amount of landfill taken up after they are discarded is significant.
Here are some ideas for alternative packaging options to consider using when preparing your customer orders for shipment.
Soy based expandable foam products are a more eco-friendly option. Derived from soy, and therefore renewable and biodegradable, this product conforms precisely to the shape of your products. This maximizes protection by minimizing movement on the inside of the carton. The product is also very light weight, reducing the additional shipping expense of heavier materials. Realistically expandable foam is best for larger operations due to the space the specialized equipment and process will require.
Consider using old newspapers as they can also be a good option as well. Shredded or balled up newspaper has decent cushioning ability. My opinion is that shredded paper has a neat look in the box and adds some “eco-cred” to your products. Aaesthetically the balled up news print leave a little to be desired, and there is no efficient way to “ball up” enough paper to keep up with a high volume fulfillment operation. Shredded paper, although requiring an extra step (to shred) does led itself to a higher volume set up.
Again, it’s not as pretty, but old cardboard boxes can be cut into strips and then rolled tightly. Place the rolls vertically into the packing box around the item in the box, the rolls will then expand providing a cushion. Similar to newsprint, if some care is taken up front to cut or prepare the boxes neatly the end product could work in a way that looks good to your customers.
Reusing something like paper or cardboard for packaging is always preferable to recycling, and of course, MUCH better than throwing those items away. Cushion packaging is sold that is made from one hundred percent post consumer waste paper – give that a try if you don’t like the look of used newspapers.
Biodegradable packing peanuts are available, made from grain sorghum and corn starch. For environmentally friendly soft foam in rolls, starch-based products such as GreenCell have the added bonus of being anti-static which is great for cushioning computer parts and electronic equipment.
For wrapping and packaging inside the box, use or reuse something. And the same goes for the cartons you are using - go for boxes made from recycled cardboard. The options these days for recycled corrugated boxes are very diverse and any place selling boxes will likely provide these product options as well .
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Monday, June 28, 2010
Three benefits to automating your freight invoice audit process
Reduce Freight Costs:
First off - the reality is a lot of freight invoices are incorrect, so they all should be checked. Mileage calculation errors are common and the complexity of fuel surcharge matrices mean that the applicable surcharge changes week to week. Do a spot check of some invoices and I can promise the wrong surcharge is getting applied on some shipments. Partnering with a resource to help automate this auditing process will make it simple for you. Most freight invoice auditors will claim a freight savings of 2-6% off your logistics spend. I can’t verify that either way, but I do agree an opportunity for savings exists. On the high end, you should expect to pay $.80-.85 per invoice, but much less with higher volumes of invoices or using EDI to facilitate the process. This would involve getting each of your carriers to interface electronically with the freight payment company. This is a bit complicated to get started with but will become relatively simple to maintain once the whole process is in place.
Reduced Shipping Administrative Expenses:
Companies conducting their freight invoice audit in-house are using expensive employee resources to ensure carrier invoices are correct - and probably not very effectively. Realistically, a manual freight audit is not able to uncover the same number of carrier audit billing errors and shipping service failures that an automated freight invoice audit process is able to identify. Automating the invoice audit process will eliminate the excessive time currently allocated to these tasks and as a result generate additional cost reduction in time saved. Think about it – how are your carrier rates sheets organized right now? Hardcopy print outs in a drawer? Maybe a spreadsheet attached to an email in someone’s inbox? How efficient or accurate is it for someone to be auditing each carrier’s invoice by referencing one of those sheets, running the miles, adding stop charges, and accesorials – and doing it correctly? Plus – they need to check this week’s fuel surcharge from the DOE website, reference yet another table provided by the carrier, and add that amount to the carrier charge. You do all this for one truckload, when you can automate the process in a way that eliminates the work and the potential errors.
Freight Management & Carrier Reporting:
From a business management standpoint, this is the possibly the most valuable benefit of automating freight invoice audit. Information. The importance of knowing all your freight data is accurate and accessible allows for effective business reporting and use of that data. Understanding your logistics and supply chain costs in detail is vital to effectively running a business. Attempting to manually audit and collect freight data is too time consuming and very error prone. Think about the valuable components of freight spend data. The better you understand the cost components that make up your freight spend, the better you manage your business. If you keep getting hit with detention a particular consignee you what to know about… if freight costs are going up because of fuel, you want to know about that too. Good information is vital to making your business run better.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
First off - the reality is a lot of freight invoices are incorrect, so they all should be checked. Mileage calculation errors are common and the complexity of fuel surcharge matrices mean that the applicable surcharge changes week to week. Do a spot check of some invoices and I can promise the wrong surcharge is getting applied on some shipments. Partnering with a resource to help automate this auditing process will make it simple for you. Most freight invoice auditors will claim a freight savings of 2-6% off your logistics spend. I can’t verify that either way, but I do agree an opportunity for savings exists. On the high end, you should expect to pay $.80-.85 per invoice, but much less with higher volumes of invoices or using EDI to facilitate the process. This would involve getting each of your carriers to interface electronically with the freight payment company. This is a bit complicated to get started with but will become relatively simple to maintain once the whole process is in place.
Reduced Shipping Administrative Expenses:
Companies conducting their freight invoice audit in-house are using expensive employee resources to ensure carrier invoices are correct - and probably not very effectively. Realistically, a manual freight audit is not able to uncover the same number of carrier audit billing errors and shipping service failures that an automated freight invoice audit process is able to identify. Automating the invoice audit process will eliminate the excessive time currently allocated to these tasks and as a result generate additional cost reduction in time saved. Think about it – how are your carrier rates sheets organized right now? Hardcopy print outs in a drawer? Maybe a spreadsheet attached to an email in someone’s inbox? How efficient or accurate is it for someone to be auditing each carrier’s invoice by referencing one of those sheets, running the miles, adding stop charges, and accesorials – and doing it correctly? Plus – they need to check this week’s fuel surcharge from the DOE website, reference yet another table provided by the carrier, and add that amount to the carrier charge. You do all this for one truckload, when you can automate the process in a way that eliminates the work and the potential errors.
Freight Management & Carrier Reporting:
From a business management standpoint, this is the possibly the most valuable benefit of automating freight invoice audit. Information. The importance of knowing all your freight data is accurate and accessible allows for effective business reporting and use of that data. Understanding your logistics and supply chain costs in detail is vital to effectively running a business. Attempting to manually audit and collect freight data is too time consuming and very error prone. Think about the valuable components of freight spend data. The better you understand the cost components that make up your freight spend, the better you manage your business. If you keep getting hit with detention a particular consignee you what to know about… if freight costs are going up because of fuel, you want to know about that too. Good information is vital to making your business run better.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Friday, June 25, 2010
The Benefits of Saas for Logistics Management
Benefits of SaaS (Software as a Service) for Transportation Management
In the old way of thinking, companies were used to buying, building, and maintaining their IT infrastructures despite exponential costs. SaaS gives companies an alternative to those headaches. Now, a company can plug in and subscribe to services built on shared infrastructure via the Internet. The SaaS model has gained popularity in recent years because of the many benefits it offers to businesses of all sizes and types, but it also begs several questions and considerations to be thought of as well.
The main benefits that are attracting businesses customers to take advantage of SaaS solutions for Transportation Management:
Higher Adoption Rates: SaaS applications are easily accessible from any computer or any device—anytime, anywhere. Because most people are familiar with using the Internet to find what they need, SaaS apps tend to have high adoption rates, with a lower learning curve.
Lower Initial Costs and Easier IT Implementation: SaaS applications are typically subscription based. No license fees mean lower initial costs. Having the SaaS provider manage the IT infrastructure means lower IT costs for hardware, software, and the people needed to manage it all.
Automatic Upgrades: Because the SaaS provider manages all updates and upgrades, there are no patches for customers to download or install. The SaaS provider also manages availability, so there’s no need for customers to add hardware, software, or bandwidth as the user base grows.
Seamless Integration: SaaS vendors with true multitenant architectures can scale indefinitely to meet customer demand. Many SaaS providers also offer customization capabilities to meet specific needs. Plus, many provide APIs that let you integrate with existing ERP systems or other business productivity systems.
Items to think about when considering a SaaS solution:
Data Security is more than just user privileges and password policies. It’s a multidimensional business imperative, especially for vendors responsible for customer data. Make sure any provider you’re considering has solid policies and procedures in place to guarantee the highest possible levels of security. Carrier and order fulfillment services contracts need to be kept safe.
With on-demand applications, customers rely on their providers to keep systems and data available. You need to trust your SaaS provider to meet your business requirements, so expect them to communicate with you as a partner in your business. You need to have access to your transportation data and systems from anywhere.
Scalability is important. With any utility, customers benefit from the scale of the supplier. Scale provides a larger customer community that can deliver more and higher-quality feedback to the vendor to drive future innovation. And a larger customer community provides rich opportunities for collaboration between customers. Make sure the vendors you’re evaluating provide:
Any vendor providing on-demand services should be professionally paranoid, considering every potential disaster, and being prepared for anything.
Data backup procedures should create multiple backup copies of customers’ data in near real time at the disk level. The strategy should include a multilevel backup strategy that includes disk-to-disk-to-tape data backup where tape backups serve as a secondary level of backup, not as their primary disaster recovery data source. Failover should cascade from server to server and from data center to data center in the event of a regional disaster, such as a hurricane or flood.
Any provider offering SaaS applications needs to be able to deliver very high availability. A detailed history should be available. Vendors should provide availability data on the entire service, not just on individual servers.
Kenneth Kowal is a logistics professional with over 15 years supply chain management experience. He has founded two companies: TMS logistics solution provider and startup ecommerce order fulfillment company FillShip.com.
In the old way of thinking, companies were used to buying, building, and maintaining their IT infrastructures despite exponential costs. SaaS gives companies an alternative to those headaches. Now, a company can plug in and subscribe to services built on shared infrastructure via the Internet. The SaaS model has gained popularity in recent years because of the many benefits it offers to businesses of all sizes and types, but it also begs several questions and considerations to be thought of as well.
The main benefits that are attracting businesses customers to take advantage of SaaS solutions for Transportation Management:
Higher Adoption Rates: SaaS applications are easily accessible from any computer or any device—anytime, anywhere. Because most people are familiar with using the Internet to find what they need, SaaS apps tend to have high adoption rates, with a lower learning curve.
Lower Initial Costs and Easier IT Implementation: SaaS applications are typically subscription based. No license fees mean lower initial costs. Having the SaaS provider manage the IT infrastructure means lower IT costs for hardware, software, and the people needed to manage it all.
Automatic Upgrades: Because the SaaS provider manages all updates and upgrades, there are no patches for customers to download or install. The SaaS provider also manages availability, so there’s no need for customers to add hardware, software, or bandwidth as the user base grows.
Seamless Integration: SaaS vendors with true multitenant architectures can scale indefinitely to meet customer demand. Many SaaS providers also offer customization capabilities to meet specific needs. Plus, many provide APIs that let you integrate with existing ERP systems or other business productivity systems.
Items to think about when considering a SaaS solution:
Data Security is more than just user privileges and password policies. It’s a multidimensional business imperative, especially for vendors responsible for customer data. Make sure any provider you’re considering has solid policies and procedures in place to guarantee the highest possible levels of security. Carrier and order fulfillment services contracts need to be kept safe.
With on-demand applications, customers rely on their providers to keep systems and data available. You need to trust your SaaS provider to meet your business requirements, so expect them to communicate with you as a partner in your business. You need to have access to your transportation data and systems from anywhere.
Scalability is important. With any utility, customers benefit from the scale of the supplier. Scale provides a larger customer community that can deliver more and higher-quality feedback to the vendor to drive future innovation. And a larger customer community provides rich opportunities for collaboration between customers. Make sure the vendors you’re evaluating provide:
Any vendor providing on-demand services should be professionally paranoid, considering every potential disaster, and being prepared for anything.
Data backup procedures should create multiple backup copies of customers’ data in near real time at the disk level. The strategy should include a multilevel backup strategy that includes disk-to-disk-to-tape data backup where tape backups serve as a secondary level of backup, not as their primary disaster recovery data source. Failover should cascade from server to server and from data center to data center in the event of a regional disaster, such as a hurricane or flood.
Any provider offering SaaS applications needs to be able to deliver very high availability. A detailed history should be available. Vendors should provide availability data on the entire service, not just on individual servers.
Kenneth Kowal is a logistics professional with over 15 years supply chain management experience. He has founded two companies: TMS logistics solution provider and startup ecommerce order fulfillment company FillShip.com.
Monday, June 7, 2010
Top 5 Benefits of Business Process Outsourcing to your Supply Chain
What supply chain functions are currently outsourced within your organization?
Today, the current economy has presented a variety of opportunities for businesses to outsource many supply chain functions and responsibilities traditionally done in-house.
Business process outsourcing (BPO) is a method of outsourcing that involves the contracting of operations and responsibilities of a specific business functions or processes to a specialized service provider. An example would be an ecommerce company outsourcing its startup order fulfillment operation.
Within the context of a company’s supply chain, these business functions could include carrier contract negotiation, freight audit and payment, fulfillment, and many others. A Logistics Service Integrator (LSI), sometimes call a 4PL (4th Party Logistics Provider) takes the role of independently managing a company’s outsourced functions, utilizing their expertise to bring the most value to the organization.
Below is a list of 5 benefits companies are able to realize through outsourcing.
TOP 5 Benefits of Business Process Outsourcing
1. Best in Class Capabilities
Best in class service providers make significant investments in technology, methodologies, and people – because what you outsource to them is their business. Their expertise lies in the experience gained by working with many clients in similar industries and having faced similar challenges. The combination of specialization and expertise gives businesses the benefits of both while avoiding the cost of investing in technology and infrastructure to support the function. With the right partnership in place, businesses can quickly realize the benefits of a new or reengineered process through dramatic improvements in critical performance measures such as cost, quality, service, and speed. The areas best suited for outsourcing are often those that are not core to the company’s business as these will be the areas not prioritized for needed attention and improvements from a company’s already limited available resources. By outsourcing the non core function to a Best in Class provider, the company can begin to see the benefits much sooner and at a lower cost.
2. Better Use of Company Resources
Outsourcing enables an organization to redirect its resources, most often in the form of people and IT resources, toward activities which are closer related their core business. Outsourcing lets a company focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not its area of expertise, the company can focus its resources on what it does best and as a result better meet its customers' expectations.
3. Reduce Operating Costs
Organizations that try to do everything themselves may incur significantly higher research, development, marketing, training, and deployment expenses, all of which hurt profitability or are passed on to the customer. An outside provider's lower cost structure, which may be the result of a greater economy of scale or other advantage based on specialization, reduces a company's operating costs and increases its competitive advantage. Costs are reduced through smoothing out demand variability since the outsource company bears the majority of fixed costs. Outsourcing reduces the need to invest capital in non core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for on an "as used" operational expense basis. Taking advantage of new on-demand system such as a Transportation Management System is better than creating an in-house TMS.
4. Reduce Business Risk
Significant risks are associated with any capital investments a business organization makes. Dynamic markets, aggressive competition, complicated government regulations, changing financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a serious investment, is a very risky proposition. Outsourcing providers make investments on behalf of many clients, not just one, so the shared investment spreads risk, and reduces the risk a single company has to bear.
5. Company Lacks Necessary Resources
Businesses outsource because they do not have access to the required resources within the company. This can be in the form of a lack of intellectual capabilities or more tangible assets such as sufficient systems or staffing. Outsourcing is often the most viable option for building or improving a needed capability. It is critical to remember that outsourcing doesn't mean abdication of management responsibility nor does it work well as a knee jerk reaction by a company in trouble. When a function is viewed as difficult to manage or out of control, the organization needs to examine the underlying causes. If the requirements expectations or needed resources are not clearly understood, then outsourcing won't improve the situation; it may in fact exacerbate it. If the organization doesn't understand its own requirements, it won't be able to communicate them to an outside provider.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Today, the current economy has presented a variety of opportunities for businesses to outsource many supply chain functions and responsibilities traditionally done in-house.
Business process outsourcing (BPO) is a method of outsourcing that involves the contracting of operations and responsibilities of a specific business functions or processes to a specialized service provider. An example would be an ecommerce company outsourcing its startup order fulfillment operation.
Within the context of a company’s supply chain, these business functions could include carrier contract negotiation, freight audit and payment, fulfillment, and many others. A Logistics Service Integrator (LSI), sometimes call a 4PL (4th Party Logistics Provider) takes the role of independently managing a company’s outsourced functions, utilizing their expertise to bring the most value to the organization.
Below is a list of 5 benefits companies are able to realize through outsourcing.
TOP 5 Benefits of Business Process Outsourcing
1. Best in Class Capabilities
Best in class service providers make significant investments in technology, methodologies, and people – because what you outsource to them is their business. Their expertise lies in the experience gained by working with many clients in similar industries and having faced similar challenges. The combination of specialization and expertise gives businesses the benefits of both while avoiding the cost of investing in technology and infrastructure to support the function. With the right partnership in place, businesses can quickly realize the benefits of a new or reengineered process through dramatic improvements in critical performance measures such as cost, quality, service, and speed. The areas best suited for outsourcing are often those that are not core to the company’s business as these will be the areas not prioritized for needed attention and improvements from a company’s already limited available resources. By outsourcing the non core function to a Best in Class provider, the company can begin to see the benefits much sooner and at a lower cost.
2. Better Use of Company Resources
Outsourcing enables an organization to redirect its resources, most often in the form of people and IT resources, toward activities which are closer related their core business. Outsourcing lets a company focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not its area of expertise, the company can focus its resources on what it does best and as a result better meet its customers' expectations.
3. Reduce Operating Costs
Organizations that try to do everything themselves may incur significantly higher research, development, marketing, training, and deployment expenses, all of which hurt profitability or are passed on to the customer. An outside provider's lower cost structure, which may be the result of a greater economy of scale or other advantage based on specialization, reduces a company's operating costs and increases its competitive advantage. Costs are reduced through smoothing out demand variability since the outsource company bears the majority of fixed costs. Outsourcing reduces the need to invest capital in non core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for on an "as used" operational expense basis. Taking advantage of new on-demand system such as a Transportation Management System is better than creating an in-house TMS.
4. Reduce Business Risk
Significant risks are associated with any capital investments a business organization makes. Dynamic markets, aggressive competition, complicated government regulations, changing financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a serious investment, is a very risky proposition. Outsourcing providers make investments on behalf of many clients, not just one, so the shared investment spreads risk, and reduces the risk a single company has to bear.
5. Company Lacks Necessary Resources
Businesses outsource because they do not have access to the required resources within the company. This can be in the form of a lack of intellectual capabilities or more tangible assets such as sufficient systems or staffing. Outsourcing is often the most viable option for building or improving a needed capability. It is critical to remember that outsourcing doesn't mean abdication of management responsibility nor does it work well as a knee jerk reaction by a company in trouble. When a function is viewed as difficult to manage or out of control, the organization needs to examine the underlying causes. If the requirements expectations or needed resources are not clearly understood, then outsourcing won't improve the situation; it may in fact exacerbate it. If the organization doesn't understand its own requirements, it won't be able to communicate them to an outside provider.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
New website for ecommerce retailers is Live! Fillship.com
We are proud to announce that the new FillShip.com website is live.
FillShip operates its ecommerce order fulfillment operation from a state of the art 600,000 sq ft food grade storage facility in eastern PA. The fulfillment customer portfolio ranges across a variety of customers, from frozen food to consumer electronics.
The FillShip value proposition:
Fillship.com is your shipping assistant. Focus on growing your business, and Fillship will take care of storing and shipping your product. Simply send us your merchandise to store – and when a customer places an order we take care of packing and shipping the order. Our east coast location promises you the quickest delivery and lowest shipping costs to the majority of the US population. Simple set up with professional program management.
Inquiries: customerservice@fillship.com or call 717.889.8509 or http://www.fillship.com/.
Thanks to Rob Tompkins at Landis Logistics for his support.
Fillship is an affiliate of TMS provider, eRoutingGuide.
FillShip operates its ecommerce order fulfillment operation from a state of the art 600,000 sq ft food grade storage facility in eastern PA. The fulfillment customer portfolio ranges across a variety of customers, from frozen food to consumer electronics.
The FillShip value proposition:
Fillship.com is your shipping assistant. Focus on growing your business, and Fillship will take care of storing and shipping your product. Simply send us your merchandise to store – and when a customer places an order we take care of packing and shipping the order. Our east coast location promises you the quickest delivery and lowest shipping costs to the majority of the US population. Simple set up with professional program management.
Inquiries: customerservice@fillship.com or call 717.889.8509 or http://www.fillship.com/.
Thanks to Rob Tompkins at Landis Logistics for his support.
Fillship is an affiliate of TMS provider, eRoutingGuide.
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