August 13, 2009 — Business process outsourcing (BPO) represents a strategic and efficient life raft for companies striving to stay afloat in these tumultuous times. If implemented appropriately, BPO can be a fast and simple solution to rapidly reduce costs, help companies survive the economic downturn and set the stage for future growth and expansion after the economic tsunami subsides. While this article specifically looks at the prospects for BPO within the logistics industry, the "success factors" suggested below are applicable to any company looking to undertake an outsourcing initiative.
Today's economic climate is clearly causing gloom, doom, fear and often panic for the logistics industry. A host of factors — the credit crunch, unprecedented economic volatility, deteriorating consumer confidence, yo-yoing fuel costs, increased governmental regulations, declining revenues, severe earnings and cash flow pressures, loss of pricing power and excess capacity — together are having a significant impact on the industry's bottom line.
Need evidence of how bleak the state of the logistics industry really is? The following are just a few examples which indicate how treacherous the waters are:
- Hapag-Lloyd, the German container shipping line, swung to a loss of $302 million in the first quarter of 2009 from a $24.5 million profit a year ago on double-digit declines in cargo volumes and freight rates. (Source: Journal of Commerce)
- UPS' 1Q09 results showed revenue was off 13.7 percent at $10.9 billion. The continuing deterioration in global economic activity resulted in decreased revenue and profitability in all business segments. (Source: UPS investor relations Web site)
- Freight traffic on U.S. railroads was down sharply during April 2009, carload traffic fell by 23 percent, and intermodal car traffic dropped by 17.9 percent, as compared to April 2008. Combined cumulative volume for the first 17 weeks of 2009 on 12 reporting U.S. and Canadian railroads was 5,573,088 carloads, down 19.0 percent (1,308,561 carloads) from last year. (Source: Association of American Railroads)
- Year-over-year tonnage freight is expected to bottom at -10.3 percent in 2Q09 before beginning a slow rise to a still stressful of -6.6 percent in 4Q09. For truckers, this promises steadily increasing pressure on rates into the summer months. (Source: FTR Associates)
BPO to the Rescue
Clearing the Decks for Success
Seven Simple Rules for Logistics Companies
1. Ensure BPO is a CEO Priority.
2. Approach Outsourcing with an Open Mind.
3. Keep It Simple.
4. Move Fast.
5. Develop a Realistic Deployment Plan.
6. Insist on Alignment and Industry Knowledge.
7. Debit Budgets in Advance.
Advantages of Moving to a BPO Model
Rapidly Reduce Cost by Sourcing Processes with Scale.
Standardize Business Processes.
Rationalize the delivery model.
Commercialize the Approach to Operations.
Which Logistics Processes Are Ripe for BPO?
Sales and Marketing