Outsourcing marketing logistics

In recent times, firms have been taking to non conventional approaches in the matter of physical distribution / management of marketing logistics. Complete outsourcing of marketing logistics is perhaps is perhaps the most noteworthy of them all.

Globally, outsourcing of physical distribution and channel services has become the in-thing in recent years. Firms strike arrangement with external logistics service providers and allow them to function as their extended arm of physical distribution and marketing channel. Put in simpler words, the firms utilize independent logistics agencies in twin capacities: (1) as a physical distribution service provider, and (2) as a marketing channel.

Developments on the transportation and information technology front, and emergence of a new generation of air express companies have rendered such arrangements feasible. Outsourcing seems to confer two major benefits. First, it helps to achieve a higher service standard in distribution. Second, it helps cut distribution costs. In other words, it is proving more efficient as well as more cost effective compared to the case wherein the companies were performing these functions on their own.

In countries like the US, for quite some time now, manufacturing firms have been partnering with air express companies for taking care of logistics and channel functions. An air express company is much larger in scope than a courier firm or freight forwarder. The express companies move packages faster compared with a courier firm or a traditional freight forwarder. Second, they provide the convenience of door-to-door movement with a single agency accountable all the way. Third, in the smaller weight range, they offer cheaper freight rates compared to a freight carrier. Most important, they have the capability to function as total logistics service providers. Many of them even offer warehousing services.

Volvo-GM’s Tie-up with FedEx

Volvo-GM Outsource Marketing Logistics, Tying up with FedEx

Volvo –GM sells to its dealers a lot of spare parts meant for its commercial trucks.

In the past, sales to these dealers used to take place through Volvo-GM’s regional warehouses. The dealers were experiencing frequent stock-outs of critical spare p=arts.

Customers needed spare parts for scheduled maintenance as well as emergency roadside repairs.

In respect of scheduled maintenance, the regional warehouse based distribution was working well. But, in respect of emergency repairs, the system was ineffective as such spare parts could not be predicted and stocked at regional warehouses.

Towards improving the service level with regard to supply of spare for emergency repairs:

. Volvo-GM worked out an innovation step, tying up with the air express company, Federal Express (FedEx)

It set up a central warehouse in Memphis, Tennesse, and stocked its entire line of spare parts in that warehouse.

Now, when a dealer needed spares in an emergency, he would call FedEx through a toll free number and FedEx would supply the parts by flight the same night. Parts were either delivered at the dealer’s shop, or even dropped at the roadside at the breakdown site.

Once the new arrangement got going Volvo-GM eliminated some of its traditional regional warehouses and reduced its overall inventory cost by 15%. Also, the dealer/customer satisfaction level went up.