Latest / Speaking of Supply Chain / Half of Outsourcing Projects Never Pay Off

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Half of Outsourcing Projects Never Pay Off · Speaking of Supply Chain

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  Speaker 1: Dependence has emerged as the greatest risk because of the
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  Speaker 1: longer contract terms and the resulting deeper integration innerant in
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  Speaker 1: a collaborative partnership, This can be exploited by the service provider.
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  Speaker 1: The key term here is the lock in effect. In Germany,
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  Speaker 1: eighty five percent identified dependence on service providers as the
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  Speaker 1: major risk.
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  Speaker 2: Welcome to Speaking of Supply Chain, where meeboch experts from
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  Speaker 2: around the world unpack the real stories, strategies, insights and
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  Speaker 2: innovations shaping the future of supply chain. I'm your host,
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  Speaker 2: Ellen Wood. Outsourcing was once seen as a straightforward equation
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  Speaker 2: reduce costs, improve efficiency, and focus on core competencies, but
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  Speaker 2: that equation is getting a lot more complicated. According to
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  Speaker 2: Mibok's latest global outsourcing study, logistics outsourcing is growing again
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  Speaker 2: across regions, yet satisfaction remains surprisingly low. Companies are wrestling
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  Speaker 2: with rising complexity, growing dependence on providers, automation investments, pricing pressure,
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  Speaker 2: and a persistent lack of transparency. At the same time,
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  Speaker 2: the rules of the game are changing. Outsourcing is no
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  Speaker 2: longer just about labor or cost savings. It's becoming a
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  Speaker 2: question of governance, trust, digital capability, and long term partnership design.
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  Speaker 2: So what does the future of outsourcing actually look like?
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  Speaker 2: And why are there so many organizations simultaneously outsourcing more
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  Speaker 2: while also bringing critical capabilities back in house. Today we're
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  Speaker 2: unpacking the findings behind the study Outsourcing under Pressure with
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  Speaker 2: one of its authors to explain what these shifts mean
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  Speaker 2: for supply chains, logistics providers, and business leaders across the world.
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  Speaker 2: Welcome Baron Mieller Dautbert Man.
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  Speaker 1: Thanks On for having me.
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  Speaker 2: Great to have you here on the podcast. So let's
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  Speaker 2: get into this study that just came out. The state
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  Speaker 2: of outsourcing is growing again globally, but it indicates that
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  Speaker 2: satisfaction is really still pretty low. What does that contradiction
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  Speaker 2: reveal about the current state of these partnerships between logistics companies.
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  Speaker 1: Yeah. For nearly three decades, MIBA Consultings Outsourcing Study have
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  Speaker 1: been an integral part of the discussion surrounding the development
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  Speaker 1: of supply chain value creation. At regular intervals, they provide
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  Speaker 1: insights into market trends, decision making, logic, and success factors
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  Speaker 1: in logistics outsourcing. The current survey from twenty thirty six
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  Speaker 1: builds on the findings of previous studies and examines in
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  Speaker 1: particular how automation, digitalization, and the increasing complexity of decision
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  Speaker 1: making processes influences shipper's outsourcing behavior. In our projects, we
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  Speaker 1: increasingly observe a desire among clients for atomation and digitalization
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  Speaker 1: to be provided by their logistics service providers. This trends
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  Speaker 1: or this trend, presents the challenge of approaching outsourcing in
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  Speaker 1: a much more collaborative spirit than it was the case
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  Speaker 1: in the past. Investment in automation require longer contract terms,
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  Speaker 1: digitalization projects require a partnership based approach of data handling.
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  Speaker 1: This apparent contradiction points to a market driven by bio
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  Speaker 1: strategic imperative to avoid managing logistics in house, which is
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  Speaker 1: precisely why outsourcing continues to grow. However, success depends on implementation, governments,
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  Speaker 1: and the quality of partnership. Consequentially, overall economic and qualitative
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  Speaker 1: success is achieved in only about half of all projects,
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  Speaker 1: the economic success only one third in Germany.
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  Speaker 2: Oh wow, those are some scary numbers. So why is
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  Speaker 2: the dependency on service providers now viewed as a bigger
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  Speaker 2: risk than traditional concerns like coster quality.
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  Speaker 1: Yeah, indeed, dependence has emerged as the greatest risk because
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  Speaker 1: of the longer contract terms and the resulting deeper integration
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  Speaker 1: innerant in a collaborative partnership. So this can be exploited
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  Speaker 1: by the service provider. The key term here is the
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  Speaker 1: lock in effect. In Germany, eighty five percent identified dependence
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  Speaker 1: on service providers as the major risk.
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  Speaker 2: Wow, that's a lot. You had mentioned automation and data
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  Speaker 2: digitalization earlier. How are those changing that the economics behind
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  Speaker 2: that decision to outsource or not to outsource.
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  Speaker 1: They make outsourcing less of a simple cost comparison, or
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  Speaker 1: to make solutions require capital, system integration, ramp up planning,
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  Speaker 1: high data quality, IT testing, and as I said, long
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  Speaker 1: term operating models as labor cost advantage shrink, decisions shift
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  Speaker 1: towards implementability, transparency, control and who carries investment risk.
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  Speaker 2: True, So I guess that leads into that transparency and
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  Speaker 2: the trust that needs to be there between those two
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  Speaker 2: partners and that the visibility of those KPIs become such
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  Speaker 2: major pressure points between shippers and those logistics providers.
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  Speaker 1: Yeah, exactly. Our customers increasingly ask us what I'm paying for.
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  Speaker 1: The study identifies KPIs and transparency, pricing, IT, digitalization, quality,
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  Speaker 1: and automation as the top dissatisfaction drivers. Rising provider cost
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  Speaker 1: can be legedi made, but without CLEO cost structure and
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  Speaker 1: KPI with ability, price increase feel arbitrary and damage trust.
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  Speaker 2: Absolutely, you know, it just feels like prices are going
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  Speaker 2: up rather than they're getting value for the increased in cost.
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  Speaker 1: Exactly.
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  Speaker 2: So, when it comes to the outsourcing process of finding
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  Speaker 2: a provider getting the contract signed, how much of that
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  Speaker 2: success or failure is determined before the operations even start
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  Speaker 2: during that tendering phase, During that searching phase, and I
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  Speaker 2: guess even the contracting phase getting to those agreements.
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  Speaker 1: Exactly, a large share of success is determined before go life.
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  Speaker 1: Poor information later changes, tight schedule, unrealistic KPIs and weak
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  Speaker 1: governments create problems that operates operations intererant. The study stresses
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  Speaker 1: detailed documents, process description, implementation plan, and it testing enough
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  Speaker 1: resources and site visits as critical success factors. Moreover, if
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  Speaker 1: a project gets off to a poor start, it can
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  Speaker 1: become trapped in a vicious circle from which is extremely
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  Speaker 1: difficult to break free.
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  Speaker 2: One thing I remember reading in another paper that was
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  Speaker 2: put out by me back was the difference in the
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  Speaker 2: way that they approach these perspectives or these areas of
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  Speaker 2: the conversations and the contracting So are those regional are
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  Speaker 2: the Is that a regional difference in how those priorities
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  Speaker 2: are determined in the contracting phase.
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  Speaker 1: Not always, but there are differences. Germany, for example, is
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  Speaker 1: very cost and control driven, with high outsourcing maturity and
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  Speaker 1: rising share of insourcing. Europe shows stronger construms runs around expertise,
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  Speaker 1: loss and transparency, and in Latin they show a strong
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  Speaker 1: growth and capacity expansion logic with shorter tender cycles and
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  Speaker 1: higher reported economic success. Priorities are therefore diverging biomaturity and
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  Speaker 1: market pressure.
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  Speaker 2: It's interesting, So you mentioned insourcing and some of those
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  Speaker 2: those hybrid models where it's not just all or nothing
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  Speaker 2: with a third party logistics provider. Why are more companies
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  Speaker 2: embracing those types of models and doing both insourcing and
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  Speaker 2: outsourcing at the same time.
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  Speaker 1: Yeah. Indeed, hybrid models are growing because companies want outsourcing
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  Speaker 1: benefits on one side without overdependence, and they selectively insource
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  Speaker 1: critical capacities world control, differentiation, knowledge retension, or flexibility matters.
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  Speaker 1: Why while still outside scalable operational activities.
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  Speaker 2: That is great to hear that it doesn't have to
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  Speaker 2: be an all or nothing proposition for companies, they're looking
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  Speaker 2: to get some assistance with that distribution of their materials
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  Speaker 2: that they don't have to give everything away. They can
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  Speaker 2: create a model that works specifically for their business, that
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  Speaker 2: utilizes the benefits of those those service providers while still
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  Speaker 2: maintaining the adherence to their brand, the product quality and
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  Speaker 2: insourcing the more important things to the company, and just
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  Speaker 2: letting distribution centers handle the distribution. So what will define
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  Speaker 2: successful outsourcing partnerships in the next five years?
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  Speaker 1: Say? Yeah, The consequence will be that successful partnerships over
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  Speaker 1: the next five years will be defined by transparent economics,
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  Speaker 1: realistic KPIs, strong governance, capability, wilvast implementation planning, and shared accountability.
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  Speaker 1: The winning model is not make or buy, but deliberately
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  Speaker 1: managed partnership architecture. Excellent.
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  Speaker 2: So where can our listeners get a copy of this
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  Speaker 2: outsourcing report?
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  Speaker 1: It's available on the METBA website.
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  Speaker 2: Well, thank you Burned so much for joining us today
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  Speaker 2: and giving us some insight into what is happening within
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  Speaker 2: the area of outsourcing for distribution.
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  Speaker 1: Thank you, thank you, it was a pleasure for me.
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  Speaker 2: Outsourcing may still be growing, but this study makes one
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  Speaker 2: thing clear. The future won't be defined by who can
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  Speaker 2: offer the lowest cost. It'll be shaped by who can
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  Speaker 2: run the most transparent, adaptive, and trusted partnership. Thank you
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  Speaker 2: so much again to Burn for joining us and helping
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  Speaker 2: us uncover the realities behind the data, and for challenging
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  Speaker 2: how we think about the future if ofgistic collaboration. Thanks
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  Speaker 2: for listening and see you next time on Speaking of
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  Speaker 2: supply Chain.
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