The seven steps to outsourcing success: how to find, evaluate, and choose a third-party logistics provider

The following is the first in a two-part series. The second part will appear in June.

Consider this scenario: Your management just informed you that it is considering outsourcing some or all of your company's logistics functions. It wants you to determine which functions should be outsourced, who they should be outsourced to, and how to manage the project to minimize the risks involved with outsourcing. Where do you start?

Part one of this article presents a methodology to find, evaluate, and choose a third-party provider. The second part presents the critical steps to implementing and managing a third-party logistics relationship.

Finding, evaluating and choosing a third-party logistics provider

There is a seven-step methodology for finding, evaluating, and choosing a third-party logistics provider.

1 The first step in successfully outsourcing a logistics function is to determine which logistics functions are candidates for outsourcing.

There are many good reasons to want to outsource including: (1) Your company's core business does not involve logistics, (2) The capital needed to become a "World-Class" logistics operation is not available, (3) Time limitations will not allow your company to develop the required capabilities in-house, (4) Your company is entering into international operations where it has little or no logistics experience, (5) Your company is entering into a new business where it has little or no logistics experience, (6) Your company may not have the in-house expertise to develop a "World-Class" logistics operation, and (7) The consolidation of subsidiaries or two separate businesses offers the opportunity to explore outsourcing of logistics functions. There are also some poor reasons to pursue outsourcing including: (1) Cost reductions, and (2) Downsizing.

As in any project of this magnitude, a cross-functional team approach will ensure a thorough study of the problem, the reduction of setbacks due to uninvolved functions, and commitment to the final solution by the whole organization. A cross-functional team should consist of individuals from sales, marketing, quality, inventory management, transportation, finance, production, accounting, information systems, and even human resources. Depending on the functions outsourced, this team may shrink or swell to meet particular requirements.

The first task of the cross-functional team is to determine the objectives of the project and how they relate to the mission, and objectives for the company....