I.S. Bilets’ka, student

O.V. Yakovleva, lecturer

Kryvyi Rih Technical University

Contemporary logistics management and outsourcing

The application of logistics outsourcing as a means for ensuring competitive advantages for an organization is given in the article.

The aim of logistics process is formulated by the basic rule of logistics so called “7R principle”: the right product with the right quality in the right quantity has to be delivered at the right time and in the right place to the right customer at the right cost. Disregarding of even one of the above conditions may lead to a loss of customers and, thus, to a decrease of the company’s competitive advantages and reduction of its market share.

The logistics approach, unlike the traditional one, suggests integration (technical, technological, information and economic) of separate units in the delivery supply chain into a unified system of direct management of material and information flows targeting the accomplishment of the desired result with a minimum loss of time and resources.

The implementation of up-to-date logistics management in companies provides reduction of stocks, high predisposition of merchandise towards deliveries, order-to-delivery lead-time reductions and quality increase, production flexibility expansion, lowering the cost of production, accelerated capital turnover.

This guarantees lower production costs and better quality of deliveries, which is a decisive competitive advantage.

Besides lowering the operative costs, together with the logistics ones, one of the basic directions of the organization strategy is concentrated on priority types of business and operations. This helps the rational allocation of resources to those types of business, which are worth competing and where the company has distinctive advantages (technology, “know-how”, special equipment, and trained personnel). This approach can be defined as “core competence”.

The universal practice therefore is to use “outsourcing” more and more widely.

The term “outsourcing” suggests contraction or decline of one’s own business process, usually that, which is not the core one and/or that, which is not profitable for the company and passing it to the company, which specializes in this field. The main advantage of outsourcing is that it lets the organization focus on its basic activity.

The expedience of outsourcing use is determined only after its analysis taking into account the following four aspects: strategic focus, operative ability, financial benefit, possibilities for improving all activities of the organization.

Outsourcing has the following advantages:

- Concentration on the basic activity (core competence). The company focuses resources and attention on its primary activity (core competence). The company focuses resources and attention on its basic competitive business. Management may concentrate on the important strategic tasks (strategic planning, elaboration of competitive strategy, etc.) and pass for execution to an external organization the routine everyday tasks.

- Use of the best methods and experience. Outsourcing allows the application of the best management methods. To win in the field of competition, the organization, which provides outsourcing, constantly improves its services and looks for opportunities to use the best technologies and solutions.

- Increase of competitiveness. The organization may react more quickly and effectively to client needs changing. Outsourcing lets a business be more flexible and respond to customer preferences.

- Cost-cutting and application of high technologies. Many organizations generally use their internal reserves instead of investing in the implementation of new technologies. But providers of outsourcing implement the new technologies; they simply have no other choice in order to stay on the market. In this way outsourcing use allows the organizations to apply new and high technologies. Since the provider of outsourcing is a specialized organization, the company, which is serviced, has a chance to decrease its capital investment and to improve the quality of production, which it manufactures. The organizations, providing outsourcing services, may also reach economies of scale.

The mechanism of outsourcing and its usage suggests taking into account the following aspects:

- Diminishing expertise. Outsourcing applied to any company function leads to the point, where internal expertise, usually necessary for its application, diminishes or disappears at all. On the other hand outsourcing increases the vulnerability of the company as it begins to depend partly or fully on the servicing organization.

- Alteration in policy/organization. In order to interact effectively with the provider of outsourcing services, management might possibly modify its company policy and business organization or elaborate new policy and organization. They have to be ready to solve the problematic situations, arising, in view of the quality of the services, rendered by the provider.

- Attitude of human resources towards company policy. Staff attitude towards outsourcing plays a very important part in its realization. The questions regarding personnel may vary from redistribution of all functions carried out by them (or training) to dismissal. The training and instruction of employees defines the quicker adaptability of the organization towards the new environment and new job organization.

Outsourcing has been applied for a long time in industrial countries. There is little research for the market resources of logistics outsourcing. In the European and Asian countries, the USA, Canada, and many other countries here is a trend in the field of outsourcing that is aimed at passing a part or all of the logistics functions to another organization, the outsourcing of logistics services is used by a greater number of organizations. The intermediaries in these relations are the so-called providers of logistics services (Third Party Logistics Services – 3PL’s).

Contemporary logistics management and outsourcing have a powerful capacity for development. The processes of globalization, integration and cooperation, as well as customer needs and demands growing show the activities of the companies, which want to be competitive on the market, apply the logistics approach in structuring their business, as well as use in their activities a tool like logistics outsourcing.