Concentration on the core business

By hiring a contract-logistics provider, a company can focus on its core business and increase its logistics efficiency through the use of economies of scale and learning-curve effects. In using such contracted services, the needs of personnel who used to work in logistics must be taken into consideration. For instance, strategies under which entire departments, including employees, are transferred to the service provider have been developed.

From outsourcing to contract logistics

The offer of tailored services to suit the exact needs of the shipper allows industrial and retail companies to concentrate on their core skills.

Through outsourcing , economies of scale and learning-curve effects that boost efficiency in the outsourced departments are exploited. Empirical studies have shown that companies appreciate the reduced logistics costs, the increased flexibility, the improved services and the opportunity to concentrate on core skills. One potential drawback is considered to be the loss of control over logistics because this service is a significant factor in customer satisfaction.

These fears can be countered by forming a long-range, strategic partnership between the customer and the logistics-service provider. Contract logistics can be seen as an expression of such a partnership [1].

Dealings with employees

One issue involving the provision of contract-logistics services that has been inadequately addressed is the way to approach the shipper’s employees. The employees who once were responsible for the services that are being outsourced must be assigned to other departments or laid off. Both options are extremely expensive. As a result, the outsourcing companies have developed a strategy of transferring entire departments, including the employees, to a service provider within the framework of a hand over of operations. This, however, harbors cost and personnel-structure risks. In addition, employee resistance can create extensive problems. For this reason, strict and comprehensive project management must be undertaken. This work must address not only the technical and financial aspects of the transfer but also the personal concerns of the employees [2].

Contract logistics and supply chain management

Generally speaking, supply chain management is the integration of all important business processes along a supply chain. At the same time, synergies are achieved both in the individual companies and between companies in the supply chain The central goal is delighting the end customer with a managed cost [3].

A partnership develops between companies in the supply chain. Within the context of supply chain management, all steps of logistics services within a supply chain are to be improved by holistically examining the flows of goods, information, finances and legal data. The ultimate goal is to always increase efficiency in the entire supply chain to the benefit of the end customer whilst maximing the profit made by all participating parties.

All of this shows that the concepts of contract logistics and supply chain management overlap in several areas. The hiring of a contract-service provider to perform logistics services enables the flows of goods, information, finances and legal data to be optimized along the entire value chain - from the raw-material suppliers through the suppliers to the producers and the retailers, and then through to the end customer.

The operational models in contract logistics

Operational models regulate how and to what extent services are handed from a customer to a third party - e.g., from an automotive manufacturer to a logistics-service provider. The operational models used in contract logistics primarily address the financial aspects of supply chain management.

Companies are increasingly asking themselves whether it makes sense to own and operate fixed assets like logistics property. One option is “off-balance-sheet” financing. Here, the logistics-service provider finances the operation of a warehouse. If necessary, a financial-service provider serves as an investor in the construction of the facility. Upon completion, the warehouse can then be flexibly leased to others.

One typical operations model is pay-on production. The operator assumes responsibility for planning and financing as well as construction and operation of the installation. At a manufacturing company, this can be a production facility. In the logistics sector, transshipping centers are a possibility. The payment by the customer is linked to the services that are used - e.g., from the units produced by a machine. Pay-on production is frequently found in the automotive industry. Here, logistics-service providers perform individual steps in the production of vehicles or components and provide the necessary equipment within the framework of the pay-on-production model [4]