Logistics and Distribution

CHAPTER 1 – INTRODUCTION

1.1 Introduction

The revolution of logistics activities is very captivating and logistics' scope is becoming greater. Traditionally, people refer logistics are simply arranging transportation from one point to another point. However, presently logistics is no longer merely transportation. It is the combination of transportation, distribution, warehousing, customer service, and other related management functions into a single business entity called logistics (Robert L.Graves, MSCPA). The combination of these activities element is also best known as Supply Chain.

In line with the development of information technologies, the changes in customers' expectation and the stiff competition, organizations strive to improve their logistics practice and process to ensure they possess a competitive advantage over their rivals. For example, Toyota adopted Just In Time (JIT) technique as part of its Toyota Production System (TPS) to improve their inventory level. Inventory is one part of supply chain that is very important in any organization to be controlled and kept at a very reasonable level.

Obviously, the JIT technique is very effective when Toyota actually realized that due to the effect of JIT, they had been able to produce extra cash in their organization and it also brought a faster response time from the factory. Latter, many other organizations have adopted it and practice it in their organization because there was a proven positive effect of the technique. However, organizations keep developing new concepts, ideas and techniques to improve the overall supply chain.

Then, organizations realize that outsourcing a part or overall supply chain activities could also bring profit and cut down their risks on activities which are not their area of expertise. They would rather concentrate on their core activity such as manufacturing so that they could focus and improve their existing product quality and new product invention. These manufacturing companies tend to outsource their supply chain activities to a third party which commonly known as Third-Party Logistics.

In this paper, the author would discuss about one of common areas that are being outsourced to a third-party which is transportation. Based on the background of ABC Company below, the author will extract information and facts about strength and weakness of outsourcing from the existing literatures and journals. Later, in the paper, author will share her view in the discussion part.

1.2 Background of company

ABC Company is a manufacturing company based in Bandar Baru Bangi. The company has been operated for nearly two years. It is owned and managed by two siblings whom are involved in the auto-parts industry for more than ten years. In the first year of business, the company's turnover is RM2 million. The company offers several types of auto parts to large automotive companies like Proton and Perodua.

Even though their business is fairly new but through the contacts they built throughout the years they were working, the demand is remarkable. The people they know had been supporting them well. The opportunities given to them were grabbed and managed well by them and customers are very pleased with their performance. Numbers of orders were increasing tremendously. Recently, they were awarded with a new contract to supply bolt and nuts to one of large automotive companies.

The contract shall commence in one month. They expect there will be daily delivery to the client. All the while they had been depending on a third party to do deliveries for them as deliveries are just two to three times per week. However, since volume will be bigger, they had to consider whether to purchase their own lorry or to continue outsourcing the delivery to their current subcontractor.

1.3 Assignment Title

Outsourcing logistics activities can gain optimization in operations. Discuss the advantages and disadvantages of outsourcing in a company of your choice using SWOT analysis.

CHAPTER 2 – LITERATURE REVIEW

Most large organizations are outsourcing those activities that are either not cost efficient if done in-house or not core to their businesses (Wadhwa and Ravindran, 2007). Company usually outsource logistics business to the third party logistics company and it can improve core competition of company (Yukui and Wanlian, 2009). Outsourcing become an enabling tool to reduce cost of operation (Robin, 2002). He further said, you can follow the technology curve much better with outsourcing.