Retailers, should you opt for an outsourced or in-house delivery?
"Have absolute clarity on the purpose of the logistics function in the organisation. Investing in developing and clearly articulating the vision of logistics in support of the overall operation are foundational steps in defining optimum logistics strategies."
Mark Broussard, President & Chief Operating Officer at SAMI (Strategic Asset Management Inc)
For the retail industry, the rapid growth in e-commerce has led to major challenges. Numerous retailers have decided to outsource their deliveries to specialists leading to a stream of benefits. However, other retailers have acknowledged they risk losing control of their brand experience. A lot of them are therefore thinking about introducing in-house deliveries to boost their revenues and enhance their customer relationships.
1. To outsource or not to outsource?
Companies decide to outsource their deliveries for several reasons, such as providing a large selection of delivery options whilst providing quick and inexpensive deliveries at quality their customers expect.
But what exactly is outsourcing and why is it useful?
Outsourcing your deliveries is the process of using a third-party company to complete that side of your operations for your business. It usually allows companies to focus on their own business or expertise and thus helps reduce costs, optimise productivity or increase revenue.
Many companies have decided to use third-party logistics in order to provide a better customer experience. They know customers’ needs are simple: they expect information and that the delivery happens at the right place and time, and in the way they chose.
Asking for a company to take care of the deliveries can therefore be a strategic option for your company. However, it also has some disadvantages, such as a loss of control over several aspects of the activity such as the customer experience.
2. What is in-house delivery and what are its advantages?
However, customers and companies are not always satisfied with the service provided by third-party logistics. Many companies now believe that a large majority of third-party companies are supplying poor quality services (e.g. late or missed deliveries) without providing any financial advantages.
As a result, a lot of industry actors have opted for in-house service enabling them to control and enforce the timeliness and quality of their deliveries.
Resorting to in-house logistics operations provides companies with the following advantages:
- Reducing costs: thanks to a better use of your space, you will be able to reduce the costs for new storage areas as well as those to other warehouses;
- Improve quality and service levels: you will be able to increase productivity, flexibility and reliability;
- More control over the customer experience;
- Optimising the flow of the supply chain thanks to the proximity of the production;
- Strengthening your existing human resources thanks to training.
However, implementing an in-house management also has disadvantages, such as the following:
- Fleet insourcing can be quite expensive due to a higher degree of fixed costs;
- Many people also perceive a company’s own fleet as a ‘free’ resource;
- Doing in-house deliveries can be quite challenging, which is why some companies think they will not be able to manage it.
3. When is it smart to do in-house deliveries?
When deciding between building an in-house fleet or outsourcing deliveries, many aspects have to be considered first:
- Costs: you first have to calculate the costs of running your own warehouse (e.g. start-up costs, maintenance and daily operations of the warehouse, etc.). Then, compare the final cost with the price asked by any third-party logistics company in order to know whether or not you can consider it as a part of your strategy;
- Strategy: think about whether or not you want logistics to be part of your strategy and therefore of your competitive advantages. If you think logistics is one of your core competences, favour insourcing;
- Program planning: be sure to have sufficient time to build operational processes and to train your staff in executing the processes before implementing in-house management;
- Practicalities: It’s often difficult to measure the quality of a subcontractor’s work. Many companies have had mishaps with some third-party logistics providers. In-housing is a safe way to make sure you keep a consistent quality throughout your supply chain.
4. How to efficiently implement in-house delivery?
Here are some means to implement your in-house delivery:
- Making use of an electronic data interchange
The key to success in the implementation of your own warehouse and transportation management system (TMS) is the collaboration between partners thanks to electronic data interchange (EDI). Collaboration is a key element of success, and in order to do so, your team members must share information between them.
This will lead to many benefits for both customers (e.g. automatic ordering, automatic notifications in case of changes, …) and retailers (e.g. ability to quickly inform customers, automatic confirmation of changes and delivery, …).
- Operation planning
Thanks to the use of analytics, you will be able to better organize routes and drivers for the future delivery periods. You will be able to add summary information on maps thus improving your transportation activities. By analysing the various planned routes, you will also be able to operate changes to your transportation processes thus creating a development roadmap. URBANTZ’s software can hence help you manage both your first and last mile operations.
A realistic implementation plan allows unforeseen events to occur in the schedule. A good planning will also enable retailers to know when they have to increase their carrier network with additional carriers.
- Building an efficient delivery service
Customers constantly order various packages to be delivered, thus putting pressure on retailers. The latter therefore need to make sure they will not oversell their available delivery slots, as they must respect their delivery expectations to foster customer loyalty.
Interestingly enough, they can allow customers to take advantage of additional delivery options according to geography, cost, time and pick up location/home delivery to better handle the delivery itself.
Here a couple of points to remember:
- Outsourcing is the process of using a third-party company to complete the delivery aspect of your business. It usually allows companies to focus on their core business or expertise;
- Doing in-house management provides companies with several advantages, such as better control over all aspects of customer experience in delivery sector;
- Several measures can be taken to improve in-house delivery: developing an internal structure, making use of an electronic data interchange, grouping and planning, improving the service levels.