An Investigation Into The Enterprise Logistics Outsourcing

◎Jiang Jialiang

An Investigation Into The Enterprise Logistics Outsourcing

◎Jiang Jialiang

Introduction

The purpose of this report is to thoroughly investigate nowadays the current situation of enterprise outsourcing logistics, which keeps developing rapidly but hides lots of risks such as information distortion, cultural differences between enterprises and logistics businesses and so on. By making comparisons between enterprises of all sizes, especially taking Carrefour as an example, the report intends to figure out strengths and weaknesses of enterprise outsourcing logistics. It is prepared so as to meet the requirements of the final writing project of Academic Writing 1.

Whether to be a versatile enterprise or pay attention on some key industries, outsourcing its logistics? This is a question. Frankly speaking,‘some enterprises really get benefit greatly from outsourcing logistics while some are suffering from it or even break down’. (Wang Shayne, 2004) So what factors contribute to these differences and does this phenomenon have any relationship with the construction of market credit system and supervision system? Specifically, the report aims to reveal answers to these questions, and make it more accessible to people.

Background

According to Zhou Maroon, (1995) ‘Since entering the 1980s, the economy demonstrated globalization and integration’, which played a significant role in promoting logistics development. In order to adapt to this situation, many enterprises tried every effort to improve management and logistics mode distribution, leading to the emergence of new logistics distributions such as logistic outsourcing.

·History of Carrefour

As one of the few large-scale enterprises which have kept taking logistics outsourcing till now, it’s of great significance to take Carrefour as an example,. Bby identifying and analyzing the advantages and risks of its own logistics distribution mode, we are able to make some analysis. Carrefour, which was first founded near Paris in 1959, is one of the pioneers of the hypermarket format. With improvement in management and logistics distribution mode, ‘it has been gradually developing not only as the first retailer in Europe, but the second international market as well’. ( Jacques Beauch, 2014) During this period, Carrefour made huge effort to enlarge its sales group and supply chains, which made the number of its customers keep increasing year by year.

Method

This report has been investigated and compiled by the following methods. Firstly an initial investigation was carried out to validate the importance, scope and feasibility of the project. Thereafter, a topic outline was presented to my instructor who duly authorized the project to go ahead. Advice as to which articles, books and online sources were suitable was obtained from my subject professors. This enabled efficient and successful research both online and in the library so as to find the latest developments in the field. By investigating the change of level of per capita consumption and Carrefour’s achievement during these years in Jiangsu province, this part intends to figure out the relationship between the purchasing power and the logistics distribution mode. In addition, a survey was designed and issued to 75 enterprises of different sizes, with the purpose of learning the strengths and risks of logistic outsourcing in different enterprises.

Findings

·General situation of logistics outsourcing

According to Wang Shuyun(2014),‘At some level, it must be an inevitable trend that big enterprises put outsourcing logistics into practice.’ Inorder to conform to the trend, many an enterprise gave up the business model of ‘big and whole’ in succession, instead, starting to focus on one or two main fields and outsource their logistics. Just as Grossman and Helpman, 2010, said, “We are living in a time of outsourcing”. According to a famous market investigation (Essen Wise Company investigation, 2002),‘we can notice that from 1992～2002, just ten years, the application of the third party logistics in 500 strong business enterprises increased nearly 65% in United States, and it would be 77% if international logistics outsourcing was included.’ At present, after more than 20 years development, the logistics outsourcing has become more mutual and even can be seen as the theme of logistics development. According to the newest data, the proportion of the third-party logistics in the whole logistics market is almost as high as ‘76% in Europe and is nearly 80% in East Asia’. (Wang Shuyun, 2014)

·Relationship between the per capita GDP and consumption per person in Jiangsu and the logistics distribution mode of Carrefour

As it can be seen from the graphs, the per capita GDP in Jiangsu kept steadily increasing, as well as per person consumption，which played a leading role in promoting Carrefour achievement and it was also being proved by statistics online. According to China Ministry of Commerce, 2010, from 2005 to 2007, ‘Carrefour China region sales kept rising at the speed of 9.8% every year, moreover, it even peaked at 16% in 2009 and added 22 new markets around east China area’. The rapid development of Carrefour cannot do without the update of logistics system. It can’t deny that one of the decisive factors contributing to Carrefour’s success is the proper use of logistic outsourcing and the severe selection of its suppliers. It is reported that more than 95% of the goods were selected from local suppliers, moreover, it insists on drawing into advanced business equipment and new concepts of retail experience.

·Key points leading to success of Carrefour’s logistics outsourcing

According to Donald C. Dowling, Jr, 2008, ‘Carrefour has two fixed outsourcing suppliers, which not only have high quality, but accept the inspection each month as well’. There are 6 aspects being used to evaluate their performance, which also the standards of the logistics partner selection in logistics outsourcing. Some relatively important are as follows.1. Quality inspection 2.Production 3.The distribution of time interval 4.The ability to complete the transportation task within the prescribed time 5.The average per vehicle loading 6.Truck loading time and cargo type meters. From what has been discussed above, it can easily draw the conclusion that by using a series of effective measures, Carrefour is able to ensure its quality of partner selection and logistic outsourcing. Apart from this, due to the improvement of supply ability, the level of customer service and inventory management, its sales continue to rise. As a result, Carrefour reaches the goal that the number of its inventory item classifications keeps increasing without a large amount of repertory goods in warehouse, which is one of the most notable advantages of logistics outsourcing. ·The risks Carrefour faced due to logistics outsourcing However, actually, for Carrefour, there is still a risk of outsourcing, which is hard to avoid and has always being a common problem. That is ‘the distribution centre cannot provide exact numbers for inventory and backlog of goods, making it hard for enterprises to evaluate the values’. (C. Dowling Donald, Jr, 2014), and it must be associated with market economic system and the lack of market integrity. Moreover, another risk is that it’s really tough for Carrefour to get the first-hand information about material carriage, resulting from the construction of credit system currently not being mature enough.

·A survey of 75 enterprises about the understanding and application of logistics outsourcing

A few weeks ago, I took part in ajob fair, and as one of the organizers, I made questionnaires about logistics outsourcing, making the survey for 75 enterprises present, which intended to figure out the specific situations and the reasons why they are for or against outsourcing. (The questionnaire is attached) The result is as follows. As can be seen, the bar chart data provides some strong evidence regarding current outsourcing. In the 75 enterprises, 62.8% adopt logistics outsourcing and 26.7% use both proprietary and outsourcing, while only 10.5% depend on themselves.

The reasons people support or against logistics outsourcing are shown below.

From the survey, as is vividly shown in the two pie charts, that although there are a number of reasons, enterprises, whether support or against logistics outsourcing, they always concentrate on one or two main reasons. It is clear that a large proportion of enterprises support outsourcing because of cost and time savings for the client and low capital commitment, while most enterprises which are against logistics outsourcing hold the view that outsourcing may leads to information distortion or out of control easily. By analyzing the reasons, we are able to find out the typical advantages and disadvantages of logistics outsourcing.

Recommendation

·Discussions on risks of logistics outsourcing

The two pie charts above would seem to suggest that many a company regards an outsourcing of logistics functions as a promising way to reduce costs, increase efficiency and to strengthen the core business. However, the findings also highlight that the thought is not that correct, and may even result in some risks. An outsourcing project is a choice with far-reaching implications, which can only succeed if there is full transparency regarding running processes, requirements and accommodations. According to Arne Gast and Michele Zanini, (2012), ‘This transparency is an important foundation on side of the principal just like on side of the service provider’.

Nowadays, since an increasing number of countries have put the market economy system into effect, which possesses a significant feature: spontaneous, and then, because of this feature, a huge number of suppliers and logistics contractors have the tendency to practice to their own benefit, making information distortion easily. What worse, it may be that construction of market credit system and supervision system in many countries is far behind the speed of economic development, which also makes the logistics contractors have the chance to profit from it, and this is the key point many logistics self-supporting enterprises worry about.

Another particular disadvantage is that by working with third party logistics, it may easily lead to the loss of control information. According to David Simchi-Levi, Philip Kaminsky, (2003), ‘By having a good and continuous communication with their clients most 3PL’s counter and try to charm away such doubts. Some 3PL’s even paint the clients logos on their assets and vest their employees like the clients ones’. The finding indicates that this risk is really serious and need to be concerned about. (Note: A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides service t o i t s c u s t o m e r s o f outsourced (or "third party") logistics services for part, or all of their supply chain management functions.)

·Suggestions on how to make logistics outsourcing a success

Firstly, apparently, it needs a huge amount of money to contract logistics to a professional logistics provider, so large-scale enterprises such as Carrefour, which have ability to take risks and recover from financial losses quickly, are more likely to succeed. Secondly, ‘the success of an outsourcing process is highly related to the quality of the tender on the one hand, as well as the quality of the bid on the other hand.’(Zhang yun, 2010) It is logical that the requirements and accommodations are essential for the creation of high-quality bids and sophisticated calculation. Last but notleast is. that partner selection is the foundation of a smooth cooperation. It is obvious that Carrefour’s selection standards are good examples (mentioned in findings). Apart from principles, mutual trust is more significant which should be established early in the partner selection process.

·Predictions towards the future

Although it still exists lots of risks of logistics outsourcing, it is becoming an inevitable trend in large enterprises, which is also necessary and important to whole society’s development a n d c o n s t r u c t i o n. Confronted with these risks, our government also has the responsibility t o t a k e a s e r i e s o f effective measures such as improving construction of market credit system and supervision system. Only in this way can we make the most of logistics outsourcing.

Work cited

1.Wang Shayne. The Theory and Application of Logistics Outsourcing (2004)

2.Zhou Moron. Since The Mid 80's on The Trend of International Economic Integration (1995)

3.H e Y a n g. C a r r e f o u r’s Competitive Strategy Analysis (2013)

4.Grossman and Helpman. Analysis of The New International Trade Theory (2010)

5.E s s e n W i s e C o m p a n y Investigation (2002)

6.Jiangsu Provincial Bureau of Statistics, 2012, Accessed at http://www.jssb.gov.cn/tjxxgk/tjfx/ sjfx/201201/t20120117_24220.html

7.China Ministry of Commerce (2010)

8.D o n a l d C. D o w l i n g, J r. International Outsourcing and Business Opportunities in the Global Case (2008)

9.Donald C. Dowling, Jr. Global HR Hot Topic—February 2014: International Outsourcing and Offshoring: An Employment Law Checklist (2014)

10.Arne Gast and Michele Zanini. The Social Side of Strategy (2012) Accessed at (http://www.mckinsey. com/insights/strategy/the_social_side_ of_strategy)

11.David Simchi-Levi, Philip Kaminsky. Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies (2003)(2003)

12.Jacques Beauch. The legend of Carrefour (2014)

13.Wang Shuyun. Logistics outsourcing and management (2014)

1 4.Z h a n g y u n. L o g i s t i c s outsourcing and third party logistics (2010)

Attachment 1

A Survey of Enterprises Logistics Outsourcing Situation

It’s a great honor for us that you 75 companies could come to our oncampus fair from busy schedules. We are really appreciating your support for the employment of college students. I am very sorry to bother you a few minutes to do a survey about your company’s situation of logistics outsourcing. Thanks for your coming and supporting.

1.Does your company adopt logistics outsourcing or ever adopted?

A.Yes.

B.No, never.

C.No, but we ever adopted.

2.If your company doesn’t adopt logistics outsourcing, what’s your logistics mode?

A.Proprietary.

B.Proprietary and outsourcing.

C.Other modes.

3.If your company ever adopted logistics outsourcing, what do you think would be the main reason you gave up this mode?

A.The huge cost of contracting logistics business.

B.The risks that information distortion or out of control.

C.T h e c u l t u r a l differences between your company and logistics business

D.Other reasons.

4.If your company a d o p t s l o g i s t i c s outsourcing, what do you think would be the main advantage of it? A.Cost and time savings for the client. B.L o w c a p i t a l commitment. C.Ability of client to focus on core business.

D.Provide flexibility.

E.Other reasons.

5.If your company never adopts logistics outsourcing, what do you think would be the main concern of it? Or what do you think the main risk of it?

A.Information distortion or out of control.

B.Some logistics businesses monopoly market.

C.The outsourcing contract is not standardized.

D.The cultural differences between enterprises and logistics businesses.

E.Other reasons.

Thanks again for your support.

（This report is written to meet the full requirements of the final exam of Academic Writing 1, Soochow University School of Politics and Public Administration Submitted on December 30th 2014）