Integrating systems and infrastructure to support the movement of materials from one place to another can be complicated. Companies continuously need to innovate in the logistics space while continuing to deliver value to their customers and the business. Outsourcing to a skilled logistics partner can spark innovation while considering time and budget constraints. The following seven tips will help your business stay on budget and on schedule when sourcing a logistics partner.
1. COLLECT DATA
Determine historic and predicted logistics related data from all relevant internal and external sources. Examples of good data points include historic and forecasted volumes (spend per supplier, region, category) and economic index (fuel outlook, transportation demand, cost of living, wages per Country / State). Having a consistent data set, could be the most time-consuming effort depending on how integrated and structured your data is, but it´s worth spending time as you move forward in the process.
2. MAP YOUR SPEND
Once you have a consistent and reliable database, you can map your spend to understand the business requirements and behaviors. Mapping spend by region, category, Pareto distribution and supplier, are good examples of spend mapping. The purpose is to visually understand the immediate and midterm capacity requirement per category and how spend is distributed among your supplier base.
3. ANALYZE THE MARKET
The purpose of analyzing the market is to understand what the cost drivers are and demand indicators that steer your pricing for each one of your suppliers, as well as identifying all the players on the specific market. The most common cost drivers of your logistic providers are fuel (diesel, gasoline, jet-fuel), wages per region, industrial and real-state cost, among others. Some general economic indicators that will complement your analysis are GDP growth, local market transport demand index per mode of transport (LTL, FTL, Dry van, Flatbed, Intermodal, etc),4. ANALYZE YOUR SEGMENTS
Based on your spend mapping, you can then analyze different elements of your segments. For example, you can understand what cost categories represent the majority of your spend on each segment and how many logistics suppliers are active on each one of those segments. Asses each of the segments market constraints by cross referencing your market analysis and the active supplier’s structure. You will also need to assess the business impacts of each category by analyzing the share of spend, business criticality and any positive or negative cost impacts to understand, where the market constraints or business impact spectrum your category is located.
5. DEFINE YOUR CATEGORY STRATEGY
Once you have positioned your category spectrum, you would define the strategy by identifying which quadrant it is located at. In a low market constraint, low business impact you need to focus on reducing the number of suppliers and streamlining your purchasing process for efficiency. In a low constraint with high business impact, the priority should be to reduce your costs and use volume as a negotiation lever. In a high constraint market with low business impact, the focus should be to reduce risk, exposure and secure existing supply while investing in relationships for the future. Finally, in a high constraint and high business impact environment, your focus should be on establishing some long term relationships with strategic partners that would help you ensure the value is maintained and the risks constrained.6. DEFINE A ROAD MAP
Define specific actions to execute your strategy on each of your categories, in the visible future. This could involve re-sourcing, renegotiating, extending contracts and reshaping service terms. Identify the projected business impacts of those actions and measure the real performance against your plan.7. ESTABLISH YOUR RESOURCES REQUIREMENTS
Identify the necessary budget, sourcing IT suites, business functions alignment and approvals necessary to begin executing your strategy. If resources are limited, integrate this variable in your analysis to reshape the strategy.