The Essence of
OUTSOURCING

Outsourcing a fleet can work well but it is not just a casual empowerment process or the moving of problems generated by road transport outside of a business. An outsourcing decision is strategic and has to be approached in a highly informed manner, with time to investigate opportunities for improvement. In this article, FleetWatch's technical correspondent Dave Scott examines the issue and puts forward some key questions operators should ask before going the route of outsourcing.

The magic buzzword of modern business is 'outsource.' We used to refer to this simply as sub-contracting but that term was too plain to describe the process of 'business re-structuring', a process that also became camouflaged as 're-engineering'.

Transport sub-contracting has been around for years among professional hauliers and construction companies who outsourced their needs according to seasonal and project demands. Outsourcing has become a serious business for ancillary transport operators who are not in the business of road transport as a key profit centre. Ancillary operators require their capital resources for their 'core competencies' and 'key performance areas' (KPA's) - adding even more to the buzzword pile.

I have watched in amazement at corporate contortions that treat their transport operations as functions that are easily sub-contracted - outsourced! Some large ancillary operator fleets are currently undergoing the mismanagement pains of hasty and ill-informed outsourcing exercises. 

One key factor that is overlooked is the challenge of maintaining the same levels of customer service. When a fleet resides in-house, it is all too easy to override a Cinderella transport operation and demand performance of delivery operations that are patently not cost effective. Outsourced transport is not there to run at a loss for a whim of a marketing decision. Rather, it is there to be both efficient and effective for all parties involved.

A real partnership
Transport operations are a cost centre inside a manufacturing business and generally don't get treated as a logistical chain partner. In-house transport is operated on a command and control basis that must respond to supply chain needs of a business with their customers.

In long contractual relationships, outsourced transport must be treated as a partner if a project is to succeed and this means that a new outsourced transport partner must have free access to in-house logistical information. What happened in the past is not as important as what is going to happen in the future in planning successful road transport contracts. In the words of Tom Peters: "There is no such thing as an intelligent, informed decision without information".

A new three-year outsourced road transport contract came into effect between Mondipak and Imperial Distribution on November 1, 2000. Derrick Minnie, executive chairman of Mondipak, provides the following valuable comment:

"Our contractors play a role beyond partnership - they are us. We may have outsourced our transport but Imperial remain part of our safety and environmental policies and they sign to that! Mondi is an Anglo American Company and safety is the first agenda item at a directors' board meeting in our group. We have to stand and be counted at the highest level for accidents that could be caused by Imperial drivers so outsourced contracts are obliged to fall in with Mondi ethics and procedures. Most importantly, Imperial are carrying Mondipak's image in the marketplace".

Koos van den Berg, Managing Director of Imperial Distribution - "Outsourced contracts are negotiated over long periods - the Mondipak deal took 9 months to negotiate and involved many people including top management on the final phases."

Forecasts drive the system 
Terry Bantock, CEO of Imperial Logistics & Transport, states: "Deals are based on long-term cost forecasts and assumptions but this is not always in line with what actually happens in practice".

So what can we learn from this? Ensure that everyone in an outsourced contract shares and understands a constantly changing landscape of business forecasts. In today's world this is even more difficult with shifting patterns of consumerism and market fragmentation. According to Derrick Minnie: "Even packaging is taking pressure from changed consumerism in South Africa. Where packaging used to outperform Gross Domestic Product by at least 3%, it is now only around 0,6%".

A new fleet of 27 Toyota Dyna and Hino trucks operating under contract between Mondipak and Imperial Distribution Systems are adapted to match forecasts for a very different business model when compared to the old Kohler Packaging fleet they replace. The old fleet was configured for a market based on narrow channel distribution patterns such as distribution centres and Co-ops. The market has changed to a wide multi-channel delivery system - direct to a manufacturer, packer and exporter.

Nice one for Toyota SA Trucks. These two Hino's are part of a fleet of 27 units that operate in the Western Cape and Natal. Note that Imperial did not get the entire Mondi outsourced contract. Gauteng operations went to another contractor. Imperial cannot be complacent in the face of competition and have three years to really prove their credentials.

More to it than price
According to Mondipak's divisional MD, Ralph von Veh: "Our production director spent too much time in despatch instead of attending to the core issues of our business." Gains from outsourcing must be quantified in terms of reduced time and inventories, as well as improved service. 

In terms of an annual contract value of R8-million, Imperial Distribution is supplying far more than trucks. Along with the vehicles are drivers, crewmen, load supervisors, on-site contract managers, satellite tracking systems, management of pallets and pool fleet availability - phew! I think we all now understand why traditional ancillary based fleets are changing their profiles to outsourced contracts managed by the likes of Imperial.

The challenge for Imperial is to live up to these promises within a time frame of only three years - that is the contractual term. Specialised trucks hauling palletised carton boxes last far beyond three years - probably 10 years in this type of operation. In the role of customer, Mondipak have cracked the performance whip!

Don't forget the drivers
One hears so much nowadays about running vehicles on double shifts and 'sweating the assets'. This all entails rotating drivers who drive the first unit to come off a shift. This is not the case in the Mondipak operation.

Drivers are assigned to one vehicle and get to know routes and customers. They don't get lost on farm deliveries and begin to service the quirkiness of Mondipak customers. One driver per truck also assigns responsibility for vehicle efficiency to one person. What's more, they detect vehicle faults earlier because drivers get to know the sounds and operation of a truck permanently under their control.

I am in total support of outsourcing where it is a true partnership. Where it isn't based on transparency and partnership, just run away! Everyone will lose his or her working overalls.