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1 2005

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Tools for logistics outsourcing

Chong L., Kennedy D.

Foundations of Control and Management Sciences

2005

No. 3

57-77

There is an increasing trend for firms to outsource their logistics function to logistics service providers (LSPs) in order to achieve competitive supply chains in terms of cost and responsiveness. However, there is still a total of 20 to 25 percent of prominent companies in North America, Western Europe and Latin America not using LSPs and 15 percent of whom do use LSPs are not satisfied with their existing arrangements [1]. Two of the main reasons reported for not using LSPs are the risk of losing control to LSPs and the perception that LSPs are unable to outperform internal logistics. While successful logistics outsourcing is reported to require an equitable contract, mutual benefits, trust and continuous improvements. In this paper, mathematical tools are developed to evaluate the impact of LSPs' service on supply chain cost and responsiveness. The evaluation includes different distribution strategies and network structures that can be facilitated by LSPs. These mathematical models may be used as a decision aid to outsource the logistics function, as a negotiation tool, and/or as an evaluation tool for continuous improvement.