Make vs Buy, Outsourcing

Strategic choices that imply an in-depth analysis of core activities and differentiating factors on an operational level as much as on a financial level

The outsourcing of logistics operations (transport, warehousing, packaging, etc.) has grown exponentially over the last two decades.

Context and challenges

The result is a logistics services market with a range of services that are now well-defined and known to potential users. Nonetheless, companies' outsourcing strategies differ greatly and contradictory practices may be in place within the same business sector.

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Make-or-buy decisions involve the consideration of multiple factors that are hard to reconcile. In fact, building a cross-functional business strategy is a complex exercise that requires specific methodologies.

Arguments for making:

  • Mastery of the skills and know-how, if the activity is strategic
  • Coordination and integration of logistics into other business processes (Supply Chain, Commerce, Production, etc.)
  • Product knowledge
  • Costs related to the potential outsourcing of the activity:
    • The cost of migrating and interfacing with the service provider (physical, IT and organizational)
    • The service provider’s margin
    • Social risks, if outsourcing
    • Etc.

…must be weighed up against arguments for buying:

  • Focus on the core business line
  • Flexibility in case of growth or shrinkage
  • Transformation of fixed costs into variable costs
  • Economies of scale and use of synergies with other activities
  • Professionalism and cost driver benefits (in particular, wage-related)
  • Service provider's information technology
  • Etc.

 

How can Argon Consulting help you?

  • Developing a make-or-buy strategy for logistics operations:
    • Benchmarking internal costs against logistics service market prices
    • Identifying return on investment for the internal solution (cost variance vs capital employed)
    • Analyzing the strategic appeal of logistics operations
    • Analyzing the need for flexibility and consequences of the impact of internal or external solutions
    • Defining the strategy implementation plan
  • Implementing the outsourcing strategy:
    • Formalizing the specifications of the activities to be outsourced
    • Selecting the panel of potential service providers
    • Managing the invitation to tender
    • Comparing bids, negotiating and decision-making
    • Contracting
    • Implementing procurement processes and managing service providers

Case Studies

Definition of a target distribution master plan to support the development of high added value activities in Asia/Pacific countries