Compare the advantages and disadvantages of ownership of logistics assets. What factors should be considered when deciding whether to own or outsource the assets needed to execute the logistics function?

Question

What will be an ideal response?

Answer 1

Answer: Advantages and disadvantages should be linked to the organization's expertise in logistics and their overall strategy and business plan. If the firm has no expertise in the logistics area and time (deliverability) is how they have chosen to win orders in the market, then they are probably best served by outsourcing the function. If they have the expertise or can build it quickly and see delivery speed and flexibility as important, then they might consider owning their own logistics assets, depending on their fit with the following factors.
Some of the major considerations are reflected in the following questions:
Does the firm have the volume needed to justify a private logistics system? Firms with low volumes or sporadic shipping needs (e.g., transport of seasonal produce) are probably better off contracting for those services.
Would owning the logistics system limit the firm's ability to respond to changes in the marketplace or supply chain? Investing in a private fleet of trucks or network of warehouses ties up capital and commits a firm to managing those systems. While that may be fine for firms with stable supply chains, it can present a problem for firms whose markets or supply chain partners are changing rapidly. A manufacturer that wants the flexibility to quickly change from domestic to foreign suppliers probably should not own the trucks and warehouses it uses.
Is logistics a core competency for the firm? Core competencies were defined as organizational strengths or abilities, developed over a long period, that customers find valuable and competitors find difficult or impossible to copy. Many firms have decided that logistics is not one of their core competencies. These firms generally outsource the logistics function to common carriers (also known as public carriers), which handle shipments on a case-by-case basis, or to contract carriers, which enter into long-term agreements with firms. Another choice is third-party logistics providers (3PLs), which are service firms that handle all of the logistics requirements for other companies. Using 3PLs allows companies to focus on their core competencies yet still enjoy access to state-of-the-art logistics capabilities.