Insourcing or outsourcing supply chain activities

The logistics industry is constantly evolving, and companies must decide whether to insource or outsource their logistics activities. Insourcing involves bringing logistics activities in-house, while outsourcing involves contracting with a third-party logistics provider (3PL). The decision to insource or outsource logistics activities depends on a variety of factors, including cost, investments, know-how, (human)resources, flexibility offering and scalability. You must weigh the pros and cons of each option in your case specifically to determine which model is preferred for your specific business.

The choice for an in- and outsourcing model is not black and white. BCI sees many hybrid operating models in the market. Examples include e.g. that the shipper / brand-owner invests in real estate and holds the lease contract, whereas the 3PL runs the operation in the shipper-owned building, with its own best in class processes, IT systems and warehouse automation. Other ‘in-between’ hybrid operator models are feasible as well.

The logistics industry is constantly evolving, and companies must decide whether to insource or outsource their logistics activities. Insourcing involves bringing logistics activities in-house, while outsourcing involves contracting with a third-party logistics provider (3PL). The decision to insource or outsource logistics activities depends on a variety of factors, including cost, investments, know-how, (human)resources, flexibility offering and scalability. You must weigh the pros and cons of each option in your case specifically to determine which model is preferred for your specific business.

The choice for an in- and outsourcing model is not black and white. BCI sees many hybrid operating models in the market. Examples include e.g. that the shipper / brand-owner invests in real estate and holds the lease contract, whereas the 3PL runs the operation in the shipper-owned building, with its own best in class processes, IT systems and warehouse automation. Other ‘in-between’ hybrid operator models are feasible as well. 

Below BCI’s approach to assessing whether to insource or outsource logistics operations.

Evaluate the current situation

Assess the current in-house logistics operations to determine whether it is meeting the business goals and objectives. Consider the cost of in-house logistics, the resources available, and the customer service level.

Review customer needs & other requirements

Analyze customer needs and demands to determine the services that must be provided in order to meet their requirements. Also other internal requirements such as the need for a WMS, level of warehouse automation, expansion options, etc. needs to be defined.

Determine realistic in-/outsourcing scenarios including hybrid

Since the choice for in- or outsourcing is not black and white, you could also consider to adapt a hybrid outsourcing model e.g. outsourcing, labor, IT and technology, while you remain (lease)owner of the real estate; see also the table before for alternative hybrid options.

Analyze the cost and capital by scenario

Compare the cost and capex of outsourcing logistics activities with the cost of in-house logistics. Be sure to include the cost and feasibility of outsourcing technology, personnel, and other related expenses, as well as the cost of change and transformation.

Qualitative assessment of scenarios

Include in the qualitative assessment elements from customer perspective, internal perspective, sustainability as well from risk & resilience perspectives. 

Make the decision and roadmap

After evaluating the current situation and the pros and cons of outsourcing, make a decision whether to outsource or insource logistics activities. A detailed scorecard can facilitate the decision making and the buy of the internal organization. Also the roadmap to changes needs to be set up, and can eventually impact the decision-making. 

Ultimately, there is no one-size-fits-all approach when it comes to deciding whether to outsource or insource logistics activities. Companies should carefully consider the pros and cons of each approach and weigh the costs and benefits of each option before making a decision.

SCM Webinar Wednesday | E2E Supply Chain Control & Outsourcing Survey, September 2024