Is outsourcing right for you?

by Sonia Straface

MISSISSAUGA, Ont. – Is outsourcing to a third party logistics provider the right strategy for your business? That was the main question during one of the many sessions at today’s Surface Transportation Summit.

Moderated by Canadian Shipper’s associate editor, Julia Kuzeljevich, a panel of logistics experts weighed in on whether or not outsourcing drives results.

The panelists included Bret Walters, general manager operations of Chalifour Canada, Brian Ware, v.p., marketing and business development, Lakeside Logistics and Lou Smyrlis, publisher and editorial director, Trucking Group, Newcom Business Media.

To kick off the session, Smyrlis shared the results of the annual survey the Trucking Group at Newcom conducts about Canadian third party logistics providers.

Smyrlis said that one of the most interesting results the survey found was the answer to a question posed to shippers about their main supply chain challenges. More than half of respondents said reducing costs was the number one challenge they faced.

“This is not something we’ve seen just in this year when the economy started to slip back into negative growth,” Smyrlis added. “We have seen this trend in our survey and other surveys repeatedly over the last five years. It seems like shippers are very concerned with controlling cost.”

The survey also probed respondents on their outsourcing trends. Two-thirds of respondents said they outsourced some of their logistics, while 20% admitted to  not outsourcing, but are considering it, and only 14% have never outsourced and have no plans to do so.

Of those companies that said they outsourced, 78% said they outsourced for outbound transportation and 64% said the outsourced for inbound transportation.

“The very last question we asked, and this is probably the most important one,” Smyrlis said, “is when you outsource has it actually improved logistics operations?”

For that question, it’s good news, said Smyrlis adding that 41% in the sample said yes, they were able to reduce the logistics costs – which was a major concern for the survey sample. In addition, 18% said their service improved.

There to give a first hand account of how outsourcing can change a company for the better was Ware and Walters.

Ware of Lakeside Logistics – a transportation solutions provider – spoke first. He said he doesn’t consider Lakeside to be a 3PL, but rather a 4PL – and that his business doesn’t call it outsourcing, rather smartsourcing.

“We’re a fourth party logistics solutions provider. I think of 3PL as tactical – they’re getting your stuff from A to B. It’s a classic form of outsourcing – it’s a simple lift and shift,” he said. “I think of 4PLs as non-asset strategic partners. We’re doing a lot of creative thinking and number crunching and relationship building with other suppliers, carriers and brokerage firms…so instead of outsourcing…we’re smartsourcing…to provide maximum cost savings.”

One of Lakeside’s customers is Walters of Chalifour Canada. Chalifour distributes hammers, nails, pipes and water heaters from a distribution centre in Ontario to a network of independent hardware stores across Canada. Before outsourcing – or smartsourcing – with Lakeside, it had 4,000 customers across Canada. The company delivered to 700 stores each week.

“We were hurting…(our) transportation costs were 14% of our annual revenue and we were only recouping half of that from the stores we delivered to,” said Walters. “We were predicting these costs to rise and there was no way to increase prices or delivery charges because the store owners were already feeling the pinch of low margins and big box competition.”

Chalifour also had a major problem with packaging.

“If a dealer ordered a simple box of screws, we delivered it,” Walters added. “If a dealer had a box of screws and an ABS pipe, we made sure they got it with no scratches or dents. Our hallmark was delivering weirdly shaped stuff, in random quantities in a perfect condition.”

So, Walters went to Lakeside which presented on its services, which guaranteed cost savings a delivery standard. So, Chalifour decided smartscouring was the route to go for the sake of business.

“I can’t stress enough strategy is key to maximize transportation efficiencies and lower transportation costs,” Ware said. “Before (Chalifour had) 50 trucks leaving London each week. Each truck was 50% full,. The carrier was using a dedicated point to point route model…LTL rates were way too high. For example, Chalifour might send half a load to Calgary and then another half load to Edmonton and they would be half-full trucks. Basically Chalifour was shipping air and nobody wants to pay for air.”

Lakeside implemented its strategy which changed the transportation model for Chalifour immensely. The company went from using 50 trucks a week, to 20 trucks a week. Additionally, each truck was now 75-80% full. Instead of using a point-to-point model, Lakeside combined multiple deliveries on one truck, to reduce miles travelled.

From project approval to roll out, the new transportation model was developed and executed by Chalifour and Lakeside’s combined efforts in just five months, said Ware.

“Lakeside proposed a guaranteed decrease in transportation cost of 10%, the actual decrease that we achieved was 20%,” said Walters. “And we achieved a 95% on time delivery standard. Needless to say, we are very happy. We exceeded the savings target by 100% and that’s not because we set a low target. The target we proposed was very reasonable at 10%.”


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