Common Mistakes that cause Outsourcing Failures in Logistics

Outsourcing is the practice of an organization renting one or more services from an external provider. Outsourcing can be done for various reasons, such as to obtain a service not offered by the organization itself or to outsource a non-core activity of the organization.

The benefits of outsourcing logistics include increased efficiency and reduced costs arising from cutting out transportation and storage costs. However, despite so many benefits, there are still certain mistakes that companies make while outsourcing.

Mistake # 1: Ignoring the cultural aspect of outsourcing

The process of outsourcing logistics can be complicated. One of the most common mistakes is ignoring the cultural aspect of outsourcing. This can lead to a failure in the task. and harm the relationship between the company and its outsourcer. The cultural aspects of outsourcing are important to consider when looking at both logistics and human resources.

A study done in 2003 by Graham, Greiner, Fink, and Morris found that “Outsourcing activities were more costly than in-house activities.” Some reason for this cost is that it can take longer to find suppliers, which may also be more difficult to find offshore as it can be more difficult to find people who want to work in the country because of the lower wages and lack of opportunities. Graham, Greiner, Fink, and Morris also found that “As a result of this process, organizations lose control over their resources.”

The process of outsourcing logistics can also have a negative effect on organizational culture. Outsourcing can cause an organization to become more top-down as they give up power to an external party. Culture is important when considering outsourcing logistics because it matters how the company cultures are influenced when they are given more power to an external party.

Mistake # 2: Ignoring the language barrier

In a recent study, an MIT research team found that more than 60% of the language differences were in non-content areas such as instructions. This means that in order to succeed with global teams, you must be able to communicate and understand instructions clearly. The MIT research team found that language is one of the main reasons for outsourcing failure.

Mistake # 3: Outsourcing logistics without a global team in place

The biggest mistake firms make when outsourcing their logistics is not having a global team in place. This means that the firm cannot communicate and understand instructions clearly and this discourages employees from being honest with each other. Without an understanding of instructions, employees will go off course and lose even more time and money.

Mistake # 4: Lack of trust and communication

Logistics outsourcing failures can be attributed to lack of trust among the stakeholders. Many companies are hesitant to outsource their supply chain management, especially when it comes to information or technology that is central to their business. This hesitation was due to an underlying fear of data manipulation by a rival company and its employees. This fear led the companies to sit on their hands for long periods of time without making any progress. They were not sure if they wanted to risk sharing critical data with another company whom they didn’t know well enough.

Lack of trust is prevalent throughout the supply chain and can be traced back to a variety of sources, including poor decision-making in the early stages of logistics outsourcing, information asymmetry between companies in the supply chain, and the problem with leadership on both sides.

Mistake # 5: Lack of clear goals and objectives

Logistics and Supply Chain companies are constantly outsourcing their work to third-party companies due to the lack of qualified employees and lack of resources.

The problem with outsourcing logistics is that there is no clear goal or objective, which leads to a lot of failures in the industry. Simply outsourcing one’s work without setting definite goals and objectives can prove to be detrimental for companies in the longer run.

Mistake # 6: Not setting up performance management systems upfront

Performance management systems work as the backbone of any logistics and supply chain company. In the absence of such a system, different outsourcing failures are likely to occur as there are no ways in which the performance on both sides can be managed properly.

Mistake # 7: Choosing a vendor to please your boss instead of meeting your expectations

Last but not least, mixing work with personal benefits is one thing that has always been more damaging to the company as a whole. The same goes for outsourcing in logistics and supply chains. Sometimes, people choose a vendor not on the basis of what is needed, but on the basis of how the boss will view them. Its important to include more than one person in choosing the final vendor for outsourcing purposes.

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