Strengthening your supply chain one link at a time. 

Best Practices for Outsourcing Transportation – It’s Up to You!!

As we approach the end of 2022, we spend time reflecting on what we accomplished over the last 12 months and ahead to 2023 (except for salespeople still trying to meet their 2022 quotas!).  St. Onge often speaks with potential clients who are considering strategies with how to best manage their transportation operations in the new year and beyond.  A common question is, “What are industry best practices when it comes to insourcing versus outsourcing transportation operations?”  The short answer is – there are no best practices.

The strategic decision to insource versus outsource transportation management, or most any component of your business for that matter, is entirely up to your business and what you considers to be your core competencies.  These are decisions made outside of business all the time, where we usually call the ‘do it yourself’ (or not) decisions.  Do you want to paint your living room yourself, or hire someone to do it for you?  Do you want to do your own taxes, or do you need an accountant to submit them for you?  There is no right or wrong answer to these questions in terms of best practices for all.  The decision depends on a number of factors:

• Time – Do you have enough time in your schedule to paint the living room? Is your time better spent doing other things that are better suited to your skillset (such as your taxes)?
• Resources – Do you have a family member who can paint the living room or do the taxes? Do you want to buy the ladder, brushes, drop cloths, etc. needed for the job?
• Skills – Are your taxes so complex that it is a better use of resources (time, money) to outsource a once-per-year job or learn to do them yourself?

With this metaphor in mind, let’s consider “best practices” in the insource/outsource decision for transportation functions.  First, we have to define what managed transportation encompasses:

1. The selection of carriers for routing guide development and management of those carriers to ensure quality service
2. The collection of transportation orders ready for tender
3. The development of shipment plans, which minimize transportation costs while meeting service requirements
4. The tendering of shipments to carriers based on those shipment plans
5. The monitoring of shipments between tender and delivery, with exception management for those shipments not adhering to the plan
6. The payment and audit of freight invoices from carriers and brokers
7. The business intelligence needed to monitor cost and performance
8. The engineering required to develop continuous improvement solutions to the network

To make the decision even more difficult, it is not an all-or-nothing proposition.  If procurement is a core competency of the business, then insourcing carrier bid events is an option.  If accounting is a core competency, then insourcing freight payment and audit may remain in house.  However, as a trusted friend in technology once told me, adding applications to your IT suite means there is “another mouth to feed”.  Consider how you balance a perceived core competency with having separate people, processes and technologies to operate them, then the effort it takes to integrate them with an outsourced provider.  Setting the strategy of core competencies will drive the insource/outsource decision for managed transportation and it will then be easy to determine if you should ‘do it yourself’ or not.  Now for painting that living room and finishing your taxes…
 
—Brian Fish, St. Onge Company
 
 

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