Logistics Outsourcing: How to Attain and Maintain Superior Competitive Positioning

ABSTRACT

Though outsourcing, through its utilization of outside know-how, may help to promote a business's competitive position by reducing its costs, improving its efficiency of operation, and accelerating its entrance into the market, it can also halt, or possibly even reverse, the improvement in position by making the operation process easy for other companies to imitate, and thus making it difficult for one's business to differentiate itself from other companies in the same market. The purpose of this report is, first, to clarify with respect to the outsourcing of logistics (physical distribution) (LO) in both the manufacturing and the retail industry, the factors that promote competitive position. Secondly, with respect to the LO of the manufacturing industry, it is to examine the conditions that make this improvement in position sustainable. The analysis of this report is mainly based on survey data.

The factors in LO that lead to higher competitive position in the manufacturing industry are different from that in the retail industry. This is because of the different role that logistics plays in each: in the manufacturing industry, logistics is, for the most part, less important than the basic functions of manufacturing and sales, while in the retail industry, the efficiency of logistics, through its direct effect on shelf stock management, has a large influence on revenue. Given these differences, however, there are some outsourcing factors that improve competitive position in either industry : 1) information sharing with the outsourcer, 2) the interest and involvement of the management team and the top management officers, and 3) the ability to handle some logistics on one's own.

While the implementation of LO in the manufacturing industry directly promotes competitive position through cost reduction, it also promotes competitive position indirectly by minimizing the throughput time and increasing the turnover rate of stock and storage. This latter benefit is not gained directly from the utilization of outside know-how, but through changes in the internal infrastructure and non-contracting operations of the business. This aspect of outsourcing is thus difficult for other companies to imitate, and, as a result, can become a strategy for sustaining the improvement in competitive position that one's company has gained.