Logistics, when combined with services and distribution, can make for a powerful and creative new form of outsourcing. Global logistics service providers such as UPS, DHL and others are leveraging their vast, worldwide IT and delivery infrastructures to create services that involve a combination of warehousing, transportation, feet-on-the-street and customer service.
“Digitization of business processes means that logistics firms are no longer mere physical transporters; they are in a way custodians of the relevant business processes,” says M.S. Krishnan, Professor, Business IT, University of Michigan’s Ross School of Business. “This will lead to new opportunities for value creation ranging from up-to-date inventory information to business-analytics services based on the huge transaction data that logistics companies own,” he says. By turning to these companies for a range of new services, enterprises can potentially cut time and costs, create efficiencies and improve services to their customers. And more organizations seem open to the idea.
“We’re starting to see many companies outsource some aspect of the service chain, whether it’s field service, spare parts management or reverse logistics,” says Mark Vigoroso, VP, Service Chain Management Research, Aberdeen Group, Boston, MA. “More and more players such as UPS, DHL, Fedex and also independent service organizations that specialize in certain industries or certain asset categories will be offering these services,” says Vigoroso. “In many cases they will be taking over the whole end-to-end service process.”
About 61% of the companies surveyed as part of Aberdeen’s Service Network Optimization Benchmark report published in March said they use or planned to use third-party logistics providers (3PLs) for such activities as service-parts management, reverse logistics and depot management. The top reasons for outsourcing these services, according to the survey, were an increased need for wider geographic service coverage, service-profitability mandates from executive management, escalating field-service labor costs and increasing areas of low-density product installations.
Vigoroso says, “Manufacturers across the board, including those in high technology, medical equipment, aerospace, industrial products and automotive, are seeing an opportunity to reduce costs, drive revenues and bolster their competitive positions by streamlining and automating many post-sales service processes.”
In many cases, the manufacturers are being pushed by growing global competition to be more efficient and maintain low costs. “Also, as products increasingly become commoditized and profit margins get slimmer, building a product-centric competitive value proposition becomes more difficult,” says Vigoroso. “From an economic point of view more senior-level customer service and post-sales service executives are looking for ways to improve operational efficiencies, drive profits and revenues from the service side of the business.”
Aberdeen, in a study published in 2005 titled Best Practices in Strategic Service Management, noted several key market pressures that are driving companies to focus more attention on post-sales service. One factor is that customers expect faster resolution times. Another is that customer service has become a competitive differentiator. Yet another, is the desire to be compliant with service contracts and product warranties, to avoid incurring costly penalties and losing customers. While some companies are investing in technologies such as remote workforce management software, parts management software and remote diagnostic systems to help improve supply-chain services, others are looking to outsource at least part of the service-chain functions.
Beyond Shipping
The delivery and logistics giants are gearing up for the growing demand for services. UPS in Atlanta offers a host of post-sales services through its UPS Supply Chain Solutions. These include asset recovery and recycling management for obsolete and excess inventory of high-technology products and components; field-tech support to perform on-site repairs, installations, preventive maintenance and other applications; parts planning; returns and repairs management; and service parts logistics using the UPS global distribution and field-stocking network.
