A framework for successful logistics outsourcing arrangements in South Africa

Abstract

Outsourcing of logistics activities is a popularly employed logistics strategy by many industries within the South African context. However, it is not fully understood what is required to ensure the sustainability of such a strategy. More specifically, the alignment of the logistics service provider and the customer is not fully understood. Customers adhere to strict procurement policies, which often result in short contractual periods, while logistics service providers aim to generate proper returns during these short contractual periods. Customers and logistics service providers require assistance in structuring the approach to a logistics outsourcing arrangement to ensure the success of the transaction. This study aims to develop a framework or roadmap to be used by customers and logistics service providers either considering to enter a logistics outsourcing arrangement or already committed to such an arrangement. The framework will provide guidance to both parties to ensure that the arrangement achieves the objectives of a modern-day logistics outsourcing arrangement. The objectives of a successful logistics outsourcing arrangement include: ensuring the sustainability of the arrangement; meeting the expectations of both parties; achieving joint and own objectives; ensuring a fair price; extending the duration of the contract; and ensuring that on termination the arrangement ends amicably. The framework is developed by means of an in-depth analysis of the life cycle of a logistics outsourcing arrangement within the South African context. Each phase within the life cycle is investigated by means of industry interviews, questionnaires, case studies and equity research. Factors affecting the success of logistics outsourcing arrangements are identified. Subsequently, possible solutions are recalled from existing research, or developed and tested to aid both parties in identifying and managing these factors throughout the life cycle. These solutions include methods for dealing with the insource versus outsource and supplier selection decisions and a method of managing detrimental behaviour of the customer and logistics service provider within the arrangement.