Transportation - Decision to go out on outsourcing



Irrespective of the transportation management (who’s who?), cost of transportation is always paid by the Lead Organization to the carrier. Organization may follow, 1PL and 2PL logistics (Transportation ONLY-insource and outsource). It is said that - Inbound and Outbound load management including transportation is one half or two third of price of the product. So majorly improving SCM, ends up in shortening cost incurred for transportation. Controlling entire inbound freight management may not be effective for all retail organizations. This may vary from organizations inbound volume and value of the load carried each time they receive an inbound freight. Its like a bell curve. I think, for an organization managing in house transportation, cost of the freight is directly proportional to the volume of the freight up to a certain 'breakeven point'. Beyond this point, cost decreases if volume goes on increasing. Hence till this point its better to compensate this cost by negotiating on outsourcing, and makes sense for organizations considering ‘Retail’ as their primary business. With continuing outsourcing, for an organization like Wal-mart cost may increase due to huge volumes (the down curve a of bell). Hence the decision to go out for an in house freight management(Insource) will turn into decrease in overall cost. This will lead to the decrease in price of an end product hence ending up with a value to the end customer. According to me, it makes more sense to Lowe’s going outsourcing rather than insourcing.

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