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Logistics is a part of the supply chain process that plans, implements, and controls the efficient and effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption, in order to meet customer requirements by Jiang and Qureshi, (2005). Outsourcing logistics is one of the most important issues to achieve the demands for more effective and efficient ways to approach competitiveness because outsourcing is about process optimization and transformation of a business. It can also develop a more advantageous strategy organisation for supporting companies to obtain the highest performance. Bhatnagar et al., (1999) claimed that in future, an important imperative for firms will be to improve their performance on inventory and lead time-related characteristics, while simultaneously capturing economies of scale and improving customer service.
Usually, companies decide to outsource some of their management functions, in order to reduce costs and/or make more effective use of working capital. Most companies also believe that outsourcing is an effective and efficient way to perform "non core-competency" functions, allowing them to focus on their operation and differentiation performance. Mclvor (2000) stated that the potential for outsourcing has moved on from those activities that are normally regarded as of peripheral concern to the organisation such as cleaning, catering and security, to include critical areas of activity, such as design, manufacture, marketing, distribution and information systems, with almost the entire value chain open to the use of outside supply.
In the implementation of the logistics arrangement increasing attention to relationships and interaction would be beneficial. Rather than considering implementation from the view of the company that would have clear advantages from the contracts. Through direct interaction with a specific business partner it would be possible to clarify in greater detail what modifications and adaptations will be required, and what consequences can be expected in the network dimensions. Platz and Temponi, (2007) stated outsourcing is a widely covered topic within operation management; it is various topics relating relationship management and the legal environment for every business. Moreover, it is important that the holistic strategic view for managing competencies has been applied for capability-based strategy implementation. So, a company should be considered from a strategic perspective by integrating the decision into the formulation of the corporate strategy of the organisation, because the expediting logistics activities, like storage and delivery of materials/products, should be through the entire supply chain (Bhatnagar et al, 1999). So, in the future, outsourcing logistics would be of competitive advantage to a company and is likely to be a key frontier of competition in the future.
In this paper, it will describe and discuss about outsourcing logistics within company in Thailand. This will also represent literature review, methodology, analysis, recommendation and conclusion.
Background Of Study
As good logistics performance requires a trade-off between the need to reduce overall supply chain inventory and lead times, and the opportunity to capture economies of scale in logistics activities like warehousing and transportation. So a lot of companies try to find the best outsourcing logistics provider to prove its logistics operation. By developing goals and selection criteria, companies will find they are better able to determine which third party will provide the “best fit” with their needs and existing operations (Bhatnagar et al, 1999).
Although companies have often taken their first outsourcing initiatives in the area of information management, some have carried the concept into almost every facet of the business. Currently, outsourcing logistics in Thailand is a more essential activity than before. Lots of companies who want to obtain more benefit and competitive advantage are trying to outsource the best performance to gain more satisfaction from customer service. Jiang and Qureshi (2006) stated that “now outsourcing is one of the most recent management strategies to emerge in response to demands for more efficient ways to address organisational competitiveness.” So it is important that company should be aware about making the decision before signing a contract with an outsourcing company. The decision to contract-out logistics can also be driven by resource and capability considerations (Bolumole, 2001).
Generally, economic reasons are vital criteria for outsourcing, since they reduce costs to organisations. However, financial gains (profit) are not regarded as criteria for outsourcing by international (non profit-making) organisations, although low- priced providers are considered if other selection criteria are met. Hamilton (2009) posted that “with capital funds tight, many companies may find it difficult to acquire the latest state-of-the-art transportation management technology or retain sufficient staff to manage new technology or develop corporate-wide logistics solutions. It is at times like this that they often turn to third-party logistics (3PLs) to provide the logistics solutions, and/or logistics service providers (LSPs) to supply the technological tools and professional services for logistics and supply chain optimization.” So this is one of the most important reasons why companies try to outsource their logistics, because if companies do it themselves, the operation will be costly.
In the case of outsourcing decisions, the critical thing to understand at the outset is exactly what the outsourced service has to offer to the company, and how this provision will need to evolve over time. This paper has been proposed to explain why a company in Thailand should consider outsourcing logistics, which are:
Outsourcing logistics can deliver a better customer service, as there is a growth in market demand;
Logistics activities involve a large commitment of capital;
A company can focus more on its core business.
In addition, a company must know how to communicate clearly to prospective service providers. So, it is important that a company gets the right outsourcing for its needs. Doody (2007) defined that effective outsourcing investment management means transferring daily management, administration and reporting duties to the outsourcing partner, allowing the investment committee to devote more time to its more critical oversight role, as many companies have adopted outsourcing logistics in order to obtain a more competitive advantage from customer service, because an outsourcing trend is a huge challenge for operators, but it is also a great opportunity for enlarging their base for business activities (Aktas and Ulengin, 2005). Therefore, this study is to examine the effectiveness and efficiency of outsourcing logistics in Thailand by evaluating the satisfaction on the aspects of customer service. It must be highlighted that the effectiveness of outsourcing is measured using perceived measures as described by Elmuti (2003). Sankaran (2002) identified the conceptualisation of third-party logistics contracts as:
“The concepts and subcategories that we have induced from the data can be grouped into four major categories. These we have labelled as follows:
(1) The prelude. This pertains to the “coming into being” of the contract, and includes the origination and initial multilateral negotiations.
(2) The physical actualization/realization of the contract. This relates to the direct, concrete, and ongoing physical manifestation of the contract and includes, but is not limited to, the logistical services that are provided therein.
(3) The multi-lateral management of the contract. This refers to the indirect, managerial planning and controlling of the contract/alliance/relationship.
(4) The context embedding the contract. This relates to influences on the contract that are not intrinsic to any one of the preceding (namely, the prelude, the physical actualization, and the management of the contract) but rather pervade them all.”
Therefore, a company can choose the best outsourcing firms to deal with its organisation. However, a company outsourcing its logistics may have another reason to try to outsource, such as the cost operation, benefit value, and the experience, etc.
So, the aim will be achieved in accordance with the following objectives:
To appreciate the importance of outsourcing logistics in Thailand;
To review the key components of outsourcing logistics in Thailand;
To review the impact of the usage of contract outsourcing logistics in Thailand on the organisation;
To review the effectiveness and efficiency of outsourcing logistics performance between Thailand and the UK.
In particular, research considering the context surrounding an outsourcing decision's results is likely to be essential and useful to corporate outsourcing management (Jiang and Qureshi, 2006). In this paper, the outsourcing logistics concept from organizational behaviour knowledge, suggest two major hypotheses to guide an investigation of the outsourcing logistics company in Thailand to improve the effectiveness and efficiency. Thus, we hypothesise:
The Company outsourcing its logistics will gain an improvement in its operation.
The Company outsourcing its logistics has the satisfaction of using an outsourcing firm.