Insourcing v Outsourcing - the jury is still out!

Is in-sourcing the new outsourcing?

12th May 2009

Programme

0930 hrs Coffee and Registration1000 hrs Welcome, Introductions and Forum survey results

Gwynne Richards FCILT O&P Forum Chairman 1030 hrs The pros and cons of in-sourcing – has logistics

become a core competence again?Ian Stansfield Distribution Director Asda Walmart

1115 hrs Coffee1130 hrs Having outsourced could I be tempted back to running my own

fleet?Matthew Woodcock CMILT Logistics and Distribution Manager Aggregate Industries, Building Materials

1200 hrs Are we adding value and justifying our management fee in our customers’ eyes? – A Third Party Logistics ViewJohn Boulter FCILT Managing Director DHL Home & Specialist Retail

1230 hrs Panel discussion1300 hrs Lunch and networking1400 hrs Close

Outsourcing and Procurement Forum

Forum Mission Statement:

To initiate original thinking and discussion in areas of outsourcing and procurement, relating to the supply chain To produce papers and reports and set up events and workshops on subjects identified by the membership of the Forum and other CILT(UK) members

http://www.ciltuk.org.uk/pages/oandpforum

In-sourcing v outsourcing“Outsourcing has been the dominant trend in logistics over the past two decades and examples of contracts being taken in-house are rare. The fact that the UK's largest retailer believes it can manage logistics operations more profitably and efficiently itself is particularly noteworthy”.

“As the economy tightens, companies are taking a hard look at areas they maybe really should be keeping internal, and actually, maybe shouldn't have outsourced in the first place (or maybe out sourced to the wrong firm). In these times, companies need service providers (both internally and externally) that fully understand the company's needs”.

“At a time when companies are trying to convert fixed costs into variable costs to gain scalability I don't think there was ever a time when outsourcing made more sense”.

“the outsourced logistics industry is poised for strong expansion because of the growing trend toward outsourcing by manufacturers so they can focus on their core competencies”.

“It is easier to outsource than to define the problem and solve it”.

“The global contract logistics market grew at 5% in 2008 according to the latest report published by Transport Intelligence, Global Contract Logistics 2009. This represents a significant weakening of the market after several years of growth of around 10%”.

http://www.transportintelligence.com/market-reports/report-global-contract-logistics-2009/241/

Third party penetration in UK retail industry (number in % volume)

1998 2007

RETAILER Warehousing Transport Warehousing Transport

Asda 64 64 4.1 -

Boots 50 (2003) 100 (2003) 10 100

Iceland 45 45 100 100

Sainsbury 64 74 51 51

Somerfield 50 100 100 100

Tesco 38 0 19 41

The Co-operative 11 (2004) 12 (2004) 6.5 6.5

Waitrose 48 48 46.5 42

Wilkinson 0 100 0 100

Source: IGD 2007 report; IGD 2008 report; IGD 1998 report, cited from Paché, 1998

Results of Outsourcing Questionnaire 2009

Comparison with 2008 survey

What % of your supply chain activities do you currently outsource?

How have these figures changed over the past 5 years?

How are these figures likely to change over the next 5 years?

How do you see your outsourced logistics provider?

"A necessary evil“

“They are only in it to make money these days”.

“Deliver poorer service for disputed financial advantage”.

What changes have you experienced in the past 3 years regarding your 3 PL relationships?

• Closer relationships (25%)• Shorter contracts• Cost reduction• Increased arms length relationships• More effective KPI and cost controls• Fewer skills• No change

Has the length of your outsourced contracts increased or decreased over past 3 years?

2008 Maximum = 7 years; Average = 2.65 years; Median = 3 years2009 Maximum = 10 years; Average = 3.57 years; Median = 3 years

Which of the following do you prefer in your transport outsourcing relationship?

Which of the following do you prefer in your warehousing outsourcing relationship?

Which of the following do you prefer in your warehouse outsourcing relationship?

Which of the following do you prefer in your Warehouse outsourcing relationship?

Benefits of outsourcing

Advantage Position 2009 (2008) % %Cost reduction 2 (1) 21.5% 15.3%Access to greater expertise 1 (2) 16.9% 16.8%Concentration on core competencies 4 (3) 15.4% 8.4%Flexibility 3 (4) 12.3% 11.6%Less risk 7 (5) 4.6% 3.7%Less capital expenditure 5 (-) >3% 7.9%Variable costs 6 (-) >3% 5.3%Consolidation - (8) 3.1% <3%More professional - (9) 3.1% <3%Effective resource management 8 (10) 3.1% 3.2%Improved service 8 (-) <3% 3.2%Access to new technology etc 8 (-) <3% 3.2%Others e.g. ‘One stop shop’; purchasing power 20% <20.0%

Someone else to blame!

Challenging the status quo

None

No need for consultants!

Outsourcing or In House?

Old question…New Era...Same answers

Grangemouth(Always In-house)

Wakefield(Always In-house)

Dartford(Christian Salvesen)

Wigan RDC(Glass Glover/Wincanton)

Lutterworth ADC(W/H = Tibbet & Britten,

T/P = Lloyd Fraser)

Lutterworth RDC(Lloyd Fraser)

Bristol(Tibbet & Britten)

Warehouse

28% Asda

The Original Asda Network

Transport

28% Asda

Grangemouth(Always In-house)

Washington(Glass Glover/Wincanton)


Dartford(Christian

Salvesen/Wincanton)

Wigan(Glass Glover/Wincanton)

Lutterworth ADC(W/H = Tibbet & Britten,

T/P = Lloyd Fraser)

Lutterworth IDC(Always In-house)

Chepstow(Lloyd Fraser)

Didcot(Always In-house)

RE-SITE 2009

Rugby Relief(Always In-house)

PROPOSED CLOSING

Warehouse

100% Asda

Current Network - ADC

Transport

97% Asda

Current Network – GM,Imports and New Business

Doncaster(Wincanton)

Teesport(always in-house)

Ollerton (CLIPPER)

Liverpool(DAMs)

Warehouse50% Asda

50% 3PL

Transport20% Asda

80% 3PL

Warehouse100% 3PL

Transport100% 3PL

GM

New Business

Falkirk(Always In-house)

Washington(Always In-house)


Erith(Always In-house)

Skelmersdale(Always In-house)

Lutterworth(Was Lloyd Fraser)

Bristol(Was Tibbet & Britten)

Bedford(Always In-house)

Larne(Wincanton)

Warehouse

89% Asda

Current Network – CDC

Transport

88% Asda

Transport from UK to Northern Ireland 100% 3PL

NDL – Christian Salvesen/ Norbert Dentresangle

Warehouse

100% 3PL

Current Network – Asda Service Centres

Transport

100% Asda

Falkirk(NDL)

Washington(NDL)

Wakefield(NDL)

Lutterworth(NDL)

Bedford(NDL)

Erith(NDL)

Skelmersdale(NDL)

Washington(Always In-house)

Lymedale(Was DTS)

Brackmills(Was Tibbet &

Britten)

Warehouse

80% Asda

Current Network - Clothing

Transport

Trunk 100% 3PL

Store 100% Asda

Teesport - Boxed

Darlington(CLIPPER)

Current Network - Petrol

Aberdeen(1 truck)

Grangemouth(5 trucks)

Stockton(2 trucks)

Immingham(5 trucks)

Nottingham(1 truck)

Purfleet(10 trucks)

Birmingham(3 trucks)

Eastham(1 truck)

Milford Haven(3 trucks)

Plymouth(2 trucks)

Avonmouth(3 trucks)

Transport

100% 3PL

Dedicated national contract managed by DHL

Consolidation Network

Wakefield(International Produce)

Boroughbridge (Reed Boardall)

Sheerness(International Produce)

Spalding (Freshlinc)

Fresh Produce

Chilled Foods

Frozen Foods

Ambient

Warehouse

100% 3PL

Transport

20% Asda

80% 3PL

Zeebrugge(2XL)

Corby(Ceva)

Manchester(NFT)

Stockport(Fowler Welch)

Leicester(Pall-ex)

Daventry(NFT)

We should be better than you

• Food…doing it for 20 years• Our systems…our buildings…our stock• Ability in IT, Engineering, HR is high• Little opportunity for external collaboration in

mature networks• What do we get for our money?

‘I’ve yet to see a better food operation than one run by a Retailer’

Please accept my apology…we need you!

• New Business areas

• Low experience and wrong systems

• Immediate access demanded…we are impatient

• De risking Industrial Relations

• It’s dangerous to be insular

Doncaster National GM Hub - Wincanton

Lutterworth ASC & Returns Centre - NDL

Darlington Clothing Deconsolidation Centre – Clipper Logistics

NBD Overview Service partners

What’s my view?

• Relationships matter…but you can’t take me to the Races!

• We need to learn…we need inspiration and innovation...show me

• Dedicated facilities would only be outsourced to de risk IR

• Non Food, Transport and New Business Operations present the opportunity

• Don’t sell me what YOU want, show me what I NEED

• Earn your keep

15 minute coffee break

© Aggregate Industries Ltd. 2009

Having outsourced could I be tempted back to running my own fleet?

Matthew Woodcock CMILT

Logistics & Distribution Manager, Aggregate Industries

IS IN-SOURCING THE NEW OUT-SOURCING?

3910/04/23© Aggregate Industries Ltd. 2009

AGGREGATE INDUSTRIES BUILDING MATERIALS (AI BM) IS A SIGNIFICANT PROVIDER OF BUILDING MATERIALS

Company & Group overview Major brands and customers

One of the UK’s largest building material providers

2008 revenue circa £300m

30 sites despatching over 3m tonnes with a fleet covering 19 million miles per annum

Part of the Holcim Group which employs 90,000 people in 70 countries in cementitious, aggregate and building material industries

www.aggregate.com

http://www.aggregate.com/


LOGISTICS IS FULLY OUTSOURCED IN AI BM, UTILISING A 4PL PLATFORM TO MANAGE OUR OUTBOUND DELIVERIES

Logistics approach until Nov 2008 >300 small hauliers and

franchisees Fragmented manual planning

Since Nov 2008 AI BM have been implementing a 4PL solution with TDG, now over 75% complete

Holistically optimised deliveries, utilising specialist hauliers resources to undertake movements

A single platform using integrated state of the art systems

Access to other TDG business to drive efficient use of resources


THE CHOICE BETWEEN IN AND OUT-SOURCING IS A CONTINUUM WITH MANY DIFFERENT OPTIONS

Most companies in the building materials and construction sector run with mixed models utilising a number of these options

OUT-SOURCED IN-SOURCED

4PLOutsourcedTransport planning

Haulier procurement

Driver/vehicleOperations

3PLOutsourcedTransport planning

Driver/vehicleOperations

Sub-contractOutsourcedDriver/vehicleOperations

FranchiseeOutsourcedDriver/vehicle

Own-fleet


OWN FLEET PROVIDES MANY CONTROL BENEFITS, BUT COMES WITH MANY RISKS AND FINANCIAL CONSTRAINTS

OWNFLEET

Greater degree of fixed cost – exposure to mix and demand changes

Demand for CAPEX (with low IRR)

True costs often hiddenPerception as “free” resource

Driver IRLegislationNot necessarily a core competency

Control of serviceOwnership of last step to customer

Availability of specialised equipment

Geographical flexibilityPolitical alignmentNo external transport profit to pay

Service flexibility


OUT SOURCED LOGISTICS GIVES FINANCIAL FLEXIBILITY AND CORE COMPETENCE, BUT CAN LOOSEN CONTROL

OUTSOURCED

Extra level of profit/margin to pay

Arms length controlVariety between providers

Exposed to haulier deserts

Specialised equipment can be hard to obtain

Providers own growth/political direction

Highly variable cost resource

No CAPEX, costs are off balance sheet

Core competency of provider

Scalable and responsive if volume/mix changes


A 4PL APPROACH PROVIDES MANY OF THE BENEFITS OF OWN FLEET THROUGH AN OUTSOURCED SOLUTION

Use of a good 4PL provider, gives many of the advantages of both the in and out sourced operating models

From the outsource model No CAPEX requirement Core competency Cost management Sustainability benefits

From the own fleet model Flexibility Greater control Greater visibility Standardisation

Service

Cost

FlexibilityCon

trol

Visibility

Cap

ital

Sustainability4PL


THE OUTSOURCED 4PL SOLUTION IS PROVIDING AI BM WITH THE TOOLS TO ADDRESS ISSUES ACROSS THE BUSINESS

OUT-SOURCE

Internal issues across value chain buried, no visibility of cost impact

Issues (cost, service, quality) captured

Trends identified

Challenge the sacred cows

Drive change across business

Improvement across the

whole value chain

Supply chain approach new to business – many years of A->B transport

Numerous behaviours in different silos adding unquantifiable cost

“Sacred cows” and company politics preventing change

Key is right relationship and contract to drive smooth efficient improvement


CAN I BE TEMPTED TO GO BACK INTO RUNNING MY OWN FLEET?

NO…. BUT MAYBE ONE DAY

Outsourcing and Procurement Forum

John Boulter, Managing Director, Non Food Retail, DHL Supply ChainAsda Lutterworth, May 12th 2009

‘Are We Adding Value and Justifying our Management Fee in our Customers’ Eyes?’

http://www.ciltuk.org.uk/pages/home

CILTUK Outsourcing and Procurement Forum, Lutterworth 12th May 2009

Perception of Outsourcing

Management Fee

Warehousing services

Sheds

Transport services

Trucks

Efficiency improvements

Additional Overheads

3PL Stereotype Capabilities

Paying for all operational cost plus % = £Cost

Traditionally, many view outsourcing as just the hire of a commodity…….

Efficiency cost savings Service improvements

Shared networks Visibility and control

Optimised Transportation

Flexible solutions Multiple locations

Shared User Warehousing

Business Challenge

Bring best practice Cross Section Experience

Supply Chain Expertise

Actual 3PL Capabilities

Management Fee

= £Value

……… in reality it is about the creation of additional value

Challenge current thinking Benchmarking


How Logistics Providers have Developed

Outsource Method Contract ServicesLogistics

OutsourcingIntegrated Supply Chain Management

1985-1995 1995 - 2000 2000 +Period

Mass Production Retailer Dominance

EU Harmonisation

Demand ‘Push‘

Customisation

Far East Production

E-commerce

Demand ‘Pull‘

The business environment is constantly changing……….

BusinessTrends

Collaboration

Reduced Risk

Transformation

Cash

Services

Relationships

Reach

Competitive Landscape

Competencies

Buyer Value

Increased Integration

Strategic Partnerships

Global, door to door

Large Alliances and niche providers

Knowledge Based

Optimised cost/service

Single Function

Transactional

Local, Regional

Fragmented

Asset Heavy

Cost Reduction

Multi-functions

Longer Term

Multi-regional

Consolidation/Alliance

Information based

Cost avoidance

……. Logistics Service Providers adapt their services to support these changes

Outsource Characteristics


The Current Market Challenges

Increased choice and channels – same customers = Cost and service pressures.

Globalisation = internal cultural challenges in traditional mature markets. Business focus

more on growth in new countries

Effects

Inflation pressures from commodity price volatility - Less ability to pass on these costs

with high impact on discretionary spend

Increased focus from Pressure groups, Governments and Business

Reduced customer confidence; Cost down approaches; reduced investment in supply

chain

Globalisation = multiple geographies, creating complex buying, merchandising and planning

challenges, E2E management

Multi-Channel Retailing

Growth in Mature Markets

The Challenge

Price Volatility

Corporate and Social Responsibility

Agenda

Financial Market Turmoil

End-to-End

Ma

rke

t E

nvi

ron

men

tR

egu

lati

on

Co

mp

etit

ive

Pre

ssu

res

Impact

To survive and thrive businesses have to constantly change

and adapt to current challenges……

…. Supply Chains will not be immune from

this constant change…

…. you will need to ensure that your Supply Chain is providing maximum value…

Creating value from your supply chain is a way of addressing market challenges…...

……… and using an experienced Supply Chain Operator can make the difference


Inhouse v Outsource?

ServiceCapability

ExpertiseExperience

Cost Efficiency

People

The Benefits of Outsourcing

Outsourcing can deliver significant business benefits…… ……..but the level of value will vary depending upon the circumstances

Capability and Resource to Deliver

Level ofBusiness Change

High

High Low

LowStay Inhouse

Outsource

When should you outsource?


The Value Gained from Outsourcing

‘The opportunities for cost reduction are finite, there are only 100 cents in every dollar. However, the opportunities for enhancing customer value are infinite – we are only limited by our imagination. (Laura Ashley)

Value

Haulier

Integrated Supply Chain Partner

Logistics Provider

Services Provided

Courier

Freight Forwarder

Strategic relationships will deliver more value…. ….however they will require greater investment and commitment


Defining the Outsourcing Relationship + Choosing the Right Partner

Outsourcing Needs?Solution CriteriaOutsourcing Needs?

Integrated supply chain serviceService CapabilitySingle Service; Local Service

Strong credit and substantial

financial strength

Financial StabilityCredit Challenges; Lower Financial

Depth

Integrated; Leading the industry;

Visibility

IT CapabilityLimited; Little Integration

Seen as an asset to the businessCultural AlignmentCost based service

Longer term; balanced structure;

risk & reward

Commercial

Stance

Short term viewpoint; tariff pricing;

no incentivisation

Common goals, Board level positionStrategySeparate goals, some alignment

Strategic partner; Openness &

Trust

RelationshipTreated as commodity supplier

Joint KPI Management;

Bonus/reward process

PerformanceAnnual Review; Penalty charges for

poor service

… to ensure you select your best Logistics Provider

Defining upfront your outsourcing needs is critical…..

Co

mm

od

ity

Bas

ed P

artn

erIn

tegrated

Strateg

ic Partn

er


Outsourcing Survey Results

3.6 years2.7 yearsAverage Contract

Length

91%88%

Maintain or Increase in

Warehouse Operations

in next five years

65%72%Warehouse Services

94%83%Transport Services

20092008Outsourcing Activity

YearYear

Through its First Choice Programme, DHL survey’s it own Customers

Annual Customer Surveys started in 2006

We ask how we are doing?

We invite our Customers views on Service, Loyalty, New Services and Account Management for example

……. 94% of businesses outsource their transport services and 96% of Customers renew their business with DHL

Do we justify our fee?.....


Value from Integrated Supply Chain Solutions

Manufacturer & Raw Materials

Export / Import Activities

Primary MovementDistribution

CentersSecondary Movement

B2B & B2C Distribution

After-sales and Reverse Logistics

Services

Value can be achieved from all across your supply chain….

International supply chainmanagement

Distribution to stores

In store logistics Home deliveryS

ecto

r S

olut

ions

Consumer

Inbound to manufacturing

Technical distribution

Technical services Service parts

logistics Reverse logistics

Inbound tomanufacturing

Service andreplacementparts

Infrastructure Logistics

In-Plant services

Clinical trials logistics

Pharmaceutical grade logistics

Temperature assured

Direct to pharmacy

Contract manufacturing

Co-packing Shared-user and

campus solutions Ambient and

temperature controlled

HealthcareAutomotive &

Industrial Technology Retail &Fashion

Consultancy services, Lead Logistics Partner services, Procurement services, Sustainability services


Summary

CILTUK Outsourcing and Procurement Forum, Lutterworth 12th May 2009 Page 5

Inhouse v Outsource?

ServiceCapability

ExpertiseExperience

Cost Efficiency

People

The Benefits of Outsourcing

Outsourcing can deliver significant business benefits…………..but outsourcing is not always the right solution

Capability and Resource to Deliver

Level ofBusiness Change

High

High Low

LowStay Inhouse

Outsource

When should you outsource?

Yes …. in the right situations

As a Senior Logistics Professional, in trying times and complex business

situations, can you afford NOT to consider outsourcing?’………’

Yes, providing the relationship is built and

managed correctly

CILTUK Outsourcing and Procurement Forum, Lutterworth 12 th May 2009 Page 7

Defining the Outsourcing Relationship

Outsourcing Needs?Solution CriteriaOutsourcing Needs?

Integrated supply chain serviceService CapabilitySingle Service; Local Service

Strong credit and substantial

financial strengthFinancial StabilityCredit Challenges; Lower Financial

Depth

Integrated; Leading the industry;

VisibilityIT CapabilityLimited; Little Integration

Seen as an asset to the businessCultural AlignmentCost based service

Longer term; balanced structure;

risk & rewardCommercial

Stance

Short term viewpoint; tariff pricing;

no incentivisation

Common goals, Board level positionStrategySeparate goals, some alignment

Strategic partner; Openness & TrustRelationshipTreated as commodity supplier

Joint KPI Management;

Bonus/reward processPerformanceAnnual Review; Penalty charges for

poor service

…otherwise you will be attempting to engage with the wrong provider

Defining upfront your outsourcing needs is critical…..

Co

mm

od

ity

Ba

se

d P

art

ne

r Inte

gra

ted

Stra

teg

ic P

artn

er

Should I

outsource?

Yes, it can be used to support the changing business challenges

CILTUK Outsourcing and Procurement Forum, Lutterworth 12 th May 2009 Page 4

The Current Market Challenges

Increased choice and channels – same customers = Cost and service pressures.

Globalisation = internal cultural challenges in traditional mature markets. Business focus

more on growth in new countries

Effects

Inflation pressures from commodity price volatility - Less ability to pass on these costs

with high impact on discretionary spend

Increased focus from Pressure groups, Governments and Business

Reduced customer confidence; Cost down approaches; reduced investment in supply

chain

Globalisation = multiple geographies, creating complex buying, merchandising and planning

challenges, E2E management

Multi-Channel Retailing

Growth in Mature Markets

The Challenge

Price Volatility

Corporate and Social Responsibility

Agenda

Financial Market Turmoil

End-to-End

Mar

ket E

nvi

ron

men

tR

egu

lati

on

Co

mp

etit

ive

Pre

ssu

res

Impact

To survive and thrive businesses have to constantly change

and adapt to current challenges……

…. Supply Chains will not be immune from this constant

change…

…. you will need to ensure that your Supply Chain is providing maximum value…

Creating value from your supply chain is a way of addressing market challenges…...

……… and using an experienced Supply Chain Operator can make the difference

Does Outsourcing

add Value?

Do LSP’s justify

their Fee?


Case StudyBusiness Continuity, Buncefield


Case Study Delivering > €1.2bn savings over 10 years

Increased usage of procurement

contracts by customers

Significant savings redirected back to NHS managers for patient care

Increased warehouse and

transport productivity

Improved inventory turns, order volumes and range of

portfolio

Reduced product prices and lead-times to health-

care trusts

Reduced logistics costs for

over 610,000 products

Single point of contact for over 600 healthcare organizations


Case Study Sequencing Product Delivery

Contract to manage Inbound to Manufacturing, In-Plant Logistics and the collection of UK and European sourced component parts for Jaguar and Land Rover vehicles

Consistent and lean operations across the UK manufacturing

sites

Dedicated team to improve UK

and EU collection operations

Reduced costs through joint

freight planning operation

In plant logistics

operations at three sites

across the UK

Management of European suppliers

Lean and efficient supply

chain supporting the build of over

300,000 cars annually

John Boulter, Managing Director, Non Food Retail, DHL Supply Chain

CHALLENGING TIMES

Outsourcing could be your Solution

Thank you!

Question Time

Potential questions

• Is logistics a core competence?• Can 3PLs be successful 4PLs?• Why are we continually debating this question

as to the benefits of outsourcing?• Why don’t we trust each other?• Is Open Book a licence to print money?• Have 3PLs been squeezed enough?• Are 3PLs risk averse?

Lunch and networking

Insourcing v Outsourcing - the jury is still out!

Documents

Transcript of Insourcing v Outsourcing - the jury is still out!