Outsourcing: A survival tool for logistics companies in uncertain times


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Business process outsourcing (BPO) represents a strategic and efficient life raft for companies striving to stay afloat in these tumultuous times. If implemented appropriately, BPO can be a fast and simple solution to rapidly reduce costs, help companies survive the economic downturn and set the stage for future growth and expansion after the economic tsunami subsides.Read more such articles at http://www.wns.com/Insights/tabid/56/Default.aspx

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Outsourcing: A survival tool for logistics companies in uncertain times

  1. 1. Business Process Outsourcing: A survival tool for logistics companies in uncertain times
  2. 2. Today's economic climate is clearly causing Business process outsourcing (BPO) represents a gloom, doom, fear and often panic for the logistics strategic and efficient life raft for companies industry. A host of factors - the credit crunch, striving to stay afloat in these tumultuous times. unprecedented economic volatility, deteriorating If implemented appropriately, BPO can be a fast consumer confidence, yo-yoing fuel costs, and simple solution to rapidly reduce costs, help increased governmental regulations, declining companies survive the economic downturn and set revenues, severe earnings and cash flow the stage for future growth and expansion after pressures, loss of pricing power and excess the economic tsunami subsides. capacity - together are significantly impacting the industry's bottom line. Need evidence of how bleak the state of the logistics industry really is? The following are just a few examples which indicate how treacherous the waters are Hapag-Lloyd, n the German container shipping line, swung to a loss of $302 million in the first quarter of 2009 from a $24.5 million profit a year ago on double digit declines in cargo volumes and freight rates. (Source: Journal of Commerce) UPS' n 1Q09 results showed revenue was off 13.7 percent at $10.9 billion. The continuing deterioration in global economic activity resulted in decreased revenue and profitability in all business segments. (Source: UPS investor Why BPO for logistics companies? relations website) Rapid cost reduction is mandatory for companies Freight n traffic on U.S. railroads was down trying to survive the most challenging economic sharply during April 2009, carload traffic fell by climate in over 60 years. And while they have 23 percent, and intermodal car traffic dropped been laggards in BPO uptake, logistics companies by 17.9 percent, as compared to April 2008. can gain significant cost savings value by Combined cumulative volume for the first leveraging BPO. For example, approximately 17 weeks of 2009 on 12 reporting U.S. and Canadian railroads was 5,573,088 carloads, 60 percent of a logistics company's operating down to 19.0 percent (1,308,561 carloads) costs are attributable to customer service. from last year. (Source: Association of American Of this, roughly 60 percent is back-office Railroads) document processing or phone-based customer contact. Outsourcing these processes to a logistics Year-over-year n tonnage freight is expected industry-savvy service provider can deliver cost to bottom at - 10.3 percent in 2Q09 savings of 40 - 50 percent before beginning a slow rise to a still stressful of - 6.6 percent in 4Q09. For truckers, this promises steadily increasing pressure on rates into the summer months. (Source: FTR Associates) BPO to the rescue 1
  3. 3. Business Process Outsourcing: A survival tool for logistics companies in uncertain times Process In-house, onshore cost range Offshore BPO cost range Bills of lading processing $5.00 - $8.00 per each $2.00 - $4.00 per each Airway bill manifesting $0.30 - $0.40 per each $0.10 - $0.20 per each Accounts payable $0.90 - $1.33 per each $0.52 - $0.83 per each (Source: WNS) But BPO delivers benefits which extend far 2. Approach outsourcing with an open mind beyond cost savings, including moving costs from The BPO industry has moved well beyond fixed to variable, maintaining focus on the delivery of volume-based voice and data work customer and retaining them in the face of into highly complex industry and insight operating cost reductions, placing focus on processes - think freight audit, tariff filing and knowledge rather than intuition to increase maintenance, claims management, billing, revenue, consolidating delivery operations to exceptions management and marketing standardize business processes, getting even more analytics. Therefore, smart companies out of shared services costs and delivering collaborate with providers to determine 'the art continuous improvement. Logistics companies of the possible.' They start the outsourcing which have included BPO in their corporate discussion by saying, "This is where we need to strategy are better poised to weather this get to, so how do we get there?". In the economic storm which threatens to sweep even logistics industry, there are the most established players away. a number of companies that are improving their operating ratios by moving processes offshore, either to captive operations or to Clearing the decks for success - third-party providers. Ocean carriers including Seven simple rules for logistics Maersk, APL, Hapag-Lloyd, NYK, MOL and companies CSAV initially pioneered the move offshore, by setting up delivery centers in India and other 1. Ensure BPO is a CEO priority lower cost countries such as Malaysia and In uncertain times, sponsorship for critical China. And third-party logistics companies initiatives such as BPO must come from the very such as FedEx, Exel, Penske, Ryder, Yellow top. Only the CEO can deliver the message that and Bax Global are taking the next step by there are no other options for survival. Otherwise, outsourcing to external BPO providers. the imperative for outsourcing is not taken very Processes delivered offshore include not only seriously, and management sees implementation rules-based work such as export as optional, easily finding ways to opt out, with documentation, and time sensitive shipment arguments ranging from "outsourcing never updates and tracking, but also more complex works, we've tried it," to "the process is too finance processes such as accounts receivable critical to outsource" to "I have to implement and consolidation of books. A typical business new systems first". As many logistics companies case for logistics companies delivers annual with a history of private ownership try to stay savings in the range of $1 million per 50 FTEs afloat in the current environment and attempt to when a documentation process is moved to an reinvent themselves to stay ahead of the offshore BPO provider, with a payback period competition, there is clearly no time to lose or for the initial investment, necessary for room for 'management by consensus'. This is a knowledge transfer and transition, of less than decision for the CEO and no half measures will 9 to 12 months. work. BPO succeeds for logistics companies when there is clear visibility of the CEO behind the wheel. wns.com | 2
  4. 4. 3. Keep it simple 4. Move fast Speed to cost reduction with no diminution of Companies can quickly put in place quality should be the first and foremost outsourcing programs by mandating that objective of BPO as a survival tool. This is not aggressive timelines are a must. Truth is, there the time to radically transform business is no change without urgency. If moving processes, implement new enterprise quickly to implement BPO is not seen as vital technology, put in the latest bells and whistles to the basic survival of the company, it will not or conduct a wholesale overhaul of the logistics produce the desired results. But imposing industry business model. Keeping it simple deadlines for the development and means being realistic about the aspirations for implementation of a roadmap including scope, the program in times of economic uncertainty, provider selection and transition will mobilize and focusing only on obtaining the benefits the organization. For example, when a multi- that truly matter now. Thus, logistics billion dollar North American shipping companies should strongly consider company decided to move its export outsourcing their simplest, most repetitive documentation process in Europe and the U.S. documentation processes such as bill of lading to India, the CEO set an internal deadline of and freight cargo receipt processing, billing, reducing onshore headcount by December 31st airway bill manifesting, driver logs entry, and of that year to ensure that lower operating freight bill capture and audit on an 'as is' costs kicked in as of the start of the new fiscal basis. A BPO service provider with expertise in year. Establishing clear deadlines, especially these areas can deliver cost savings for their when mandated by the CEO, gets the entire clients in as little as 90 days. organization focused and moving quickly to reap the benefits. Rapidly reducing the cost structure for 5. Develop a realistic deployment plan a European NVOCC Even when outsourcing is being implemented for cost savings, many companies push for or A leading European Non-Vessel Operating buy into an unrealistic transition roadmap in Common Carrier (NVOCC) looked to reduce their haste to cut out more cost. And when the its mounting staff costs in Europe, Latin first failure occurs because processes cannot America and Asia. WNS' deep logistics be thoroughly documented, the network is not industry knowledge contributed to a ready or work shadowing is insufficient, the solution which standardized and migrated naysayers come out in force. A deployment the NVOCC's entire import bill of lading strategy that builds up steam over time after and import manifest preparation processes the success of initial phases is far more likely among all its locations to one of WNS' to meet objectives. For example, due to the offshore delivery centers, resulting in a geographically dispersed nature of the logistics 50 percent cost reduction. Further, the industry, a key initial consideration is which standardized processing environment operating regions are better suited to created for them has dramatically improved consolidation via outsourcing benefits than information dissemination among its others. In many cases, if in-house shared network of offices. The NVOCC is now services centers (SSC) already exist, experiencing minimal rework when moving developing an offshoring plan through the SSC shipments around the globe, and negligible may be the logical place to begin, with other to no customs delays or fines. regions following suit in a phased approach. 3
  5. 5. Business Process Outsourcing: A survival tool for logistics companies in uncertain times cost out fast. Truth be told, short of cutting Moving from fixed to variable costs for a global express and logistics company staff to the bone, there is rarely another way. This is particularly true in cost center functions A global Top 3 express and logistics such as documentation, freight audit, driver company had to decrease the expenses logs, claims and finance and accounting. associated with its mission-critical airway A BPO provider with logistics domain expertise bill manifesting process. With specialist knows the extent of cost savings attainable for operations centers serving the logistics outsourced processes, and can work with the industry, WNS was able to establish a client to craft a scope of services specifically 350-person operation for the company in designed to achieve budget goals. less than 90 days, and is handling an annual volume of over 9 million airway Advantages logistics companies gain by bills. WNS not only reduced airway bill manifesting expenses by 60 percent, moving to a BPO model but significantly increased the accuracy of Rapidly reduce cost by sourcing processes data input to 99+ percent. As the delivery with scale is priced on a unit transaction basis, the With industry-wide declines in operating margins client gained the benefit of variable cost in 2008 of between 10 to 40 percent and pricing, with WNS assuming the pessimistic outlooks for 2009 where flat growth volume risk. will be considered "success", the need to reduce the cost base to align with volume and revenue projections has never been more urgent. 6. Insist on alignment and industry knowledge For example, document processing as part of the Partnering with a BPO provider who value chain accounts for 35 to 50 percent of total understands you are the client, and will align personnel costs in the logistics industry. with your ways of working - rather than impose This people - time - and money-consuming its own - is vital in good times and bad. process can easily be selected as the first Alignment refers to understanding the client's candidate for outsourcing to a third-party with the values and accordingly adjusting its working scale to deliver these processes at a significant style, designing its deliverables to support the cost savings, leading to a more expansive BPO client's needs and having the flexibility to meet program to further decrease operating costs. ever changing business needs in this economic climate. Equally important is deep industry knowledge. If a provider isn't highly experienced in processing bills of lading, freight bills, driver logs and commodity classification, and is unfamiliar with the underlying rules of freight, duties and taxes in different operating regions, entrusting delivery of those processes to that third-party can quickly 'sink a ship.' 7. Debit budgets in advance This little trick obtains commitment where it counts - in the budget process. Building BPO savings into the current year's budget in advance ensures managers have no excuse but to be committed to the implementation of the BPO program or find some other way to get the wns.com | 4
  6. 6. Standardize business processes Commercialize the approach to operations Consolidating business processes offshore in an Most companies cannot put a price on the cost of effort to reduce cost has a positive by-product - processing a bill of lading, driver log or airway bill, levels of standardization that are difficult to collecting a receivable or interacting with a achieve through incremental efforts such as customer. Imposing the discipline of a BPO process reengineering when times are easier. contract replete with unit cost, turn around times With standardization, organizations are well- and customer satisfaction levels makes the positioned to take the next step to transform organization think differently about consumption processes through technology and quality, which and service levels, making the actual cost to sell a takes them to the next level of efficiency. product or service transparent. By partnering with For example, a leading NVOCC successfully a knowledgeable BPO provider and implementing standardized its import manifest process across a transaction-based pricing model, logistics 13 countries by moving it to an offshore BPO companies can typically reduce their transaction provider. By standardizing how every single field is processing expenses by as much as captured with the exception of specific regulatory 30 to 50 percent. Specifically, the in-house cost or critical local requirements the company now of processing a bill of lading can run has a more robust MIS capability and a uniform $5.00 - $8.00, while offshoring can reduce the process across its operating regions, performed expense to $2.00 - $4.00. And processing an with fewer resources at lower cost. airway bill can cost a logistics company between $0.30 - $0.40, but an offshorer can deliver at a Rationalize the delivery model cost in the range of $0.10 - $0.20. The greatest challenge in moving to a shared services, or horizontal structure is overcoming Delivering continuous improvement for misconceptions and fears about diminution of a Fortune 500 logistics company service levels, risk and performance. By wrenching processes out of the business lines After reaching steady state, the U.S.-based in the name of corporate survival, the objections shared services operations of a Fortune which delay or derail consolidation and 500 logistics company hit a plateau in its centralization are, in effect, overcome. In an ability to optimize its cost structure. outsourced environment, the scale, expertise, By engineering a rapid transition to flexibility and cost savings quickly become offshore delivery, and seeding the offshore evident. BPO providers can readily and rapidly tap operations team with industry and offshore talent pools to deliver business processes functional experts, WNS was able to attain at a significantly reduced cost. Moreover, given an additional 40 percent cost savings for enhanced and redundant communications and the company. And by applying Six Sigma connectivity infrastructures, shipping documents and Lean principles to the client's can just as easily and transparently be processed processes, productivity gains of 10 percent in Mumbai, Mexico City or Manila. For example, were achieved within the first three years of with 24x7 availability of skilled staff, BPO has the engagement. Pleased with the results emerged as one of the only strategies with which of this partnership, the client is now logistics companies are able to ensure a turn tracking business outcomes, as opposed to around time of less than one hour for bills of transactional metrics, delivered by WNS, lading and airway bills with nearly 100 percent and is poised to weather this economic accuracy. In fact, some processes such as freight storm in relation to its competitors. audit or duplicate payments analysis cannot be delivered cost-effectively without tapping into BPO's lower cost base. 5
  7. 7. Business Process Outsourcing: A survival tool for logistics companies in uncertain times Which logistics processes are ripe for business process outsourcing? A wide range of transactional and highly complex logistics processes can successfully be outsourced to a third-party service provider with deep, proven logistics industry domain expertise. Sales/marketing Operations Finance Tariff n updates Import/export n manifest Accounts n payable Marketing n collateral PO entry n AR/credit n and collections Campaign n management Drivers n logs Disbursement n accounting Rate n quotes Fuel n tickets Agent n reconciliations Sales n reports n gateway EDI exception General n ledger management Bank n reconciliations Customer service Tracking n status updates Management n reporting Service/rate n inquiries Vendor n performance reports Customer n advisory Operations n planning Origin/destination agent Pre-advice/arrival n notification Cargo n de-stuffing Export n manifest Cargo n tracking Customs n clearance Collect n charges Web n help Vessel n performance Invoicing n Cargo n claims Vendor n contracts Import n manifest Complaints n Import n charges Bookings n Documentation BL/AWB/FCR n processing Billing n and invoicing Freight n audit Tariff/contract n filing Data n transmission Compliance n checks Landed n cost WNS Global Services North America United Kingdom India 420 Lexington Avenue The Lodge Gate No. 4, Plant 10 Suite 2515 Harmondsworth Lane Godrej & Boyce Complex New York, NY 10170 West Drayton, Middlesex Pirojshanagar UB7 0AB Vikhroli (West) Mumbai 400 079 wns.com | 6
  8. 8. Copyright © 2009 WNS Global Services About WNS WNS is a leading global business process outsourcing company. Deep industry and business process knowledge, a partnership approach, comprehensive service offering and a proven track record enables WNS to deliver business value to some of the leading companies in the world. WNS is passionate about building a market-leading company valued by our clients, employees, business partners, investors and communities. To learn more, please write to us at info@wnsgs.com or visit wns.com