After getting familiar with basics of SCM through lecture, logistics game and assignment, we opened the first out of three triggers that dealt with the contemporary danger of outsourcing and introduced example of truck drivers being attacked. Our team decided to study the topic of challenges of outsourcing and focus on the following learning objectives:
In today's globalized world, when a product has to go a long way to get all the way to the customer, there are naturally many threats on the way and cargo thefts are one of them. Thefts not only cause financial losses but they may cause a permanent psychological issues for truck drivers.
One way of minimizing these risks is to understand the way the thiefs work and then set appropriate protection as many stages as possible. The Inbound logistics gives some of the common strategies used by cargo thieves:
Inbound Logistics gives some advice to prevent the thefts, I am going to include only some of them:
- using GPS tracking tools and security alarm if the trucks goes outside set route
- applying different systems of locks that prevent the tractor and the trailer from separating
- noticing suspicious things (such as foreign car parked outside of the premises) and instant action
- training employees for such situations- which includes self-defense practices, reporting procedure, psychological trainings etc. But also screening them and their previous activity and their background
Unfortunately, this situation cannot be avoided completely so companies should always be aware of it. Thefts do not concern only truck drivers but also ships, in a sense of maritime piracy, as decribed on How stuff works. Especially around Somalia, Indonesia or Bangladesh there are big risks of being attacked by pirates, who are trained and armed. In this case, the cargo is not usually the reason as stealing such large volumes might even be impossible. The pirates usually take the ship and the crew as a hostage and then require ransom.
3. How does the black market affect the supply chain
At Inbound Logistics, J. Palmer claims that the international global crisis has raised the demand for black market goods. In the United States, there is even a system to recruit and train cargo thieves. Who then steal cargo, which is then shipped mainly to poorer countries of Latin America. The revenues from the sales of stolen cargo is often used to finance activities of American gangs. There are even concerns that this money may be used to finance terrorist organizations.
Usually the most stolen goods are pharmaceutics, consumer electronics or food. Also very basic items such as bottled water are being increasingly attractive for thieves.
The stolen cargo doesn't mean just the financial loss of the stolen products but costs that follow, for example due to the theft, customers will not get their orders in time
-> they will complain, maybe require their money back and have a negative opinion about the company since then.
-> This means losing customers and their life-time purchases they would possibly do at the company.
-> As a result of a theft, the company will increase their prices because they will need more money to secure future cargo.
-> And also there is a loss for the government because of the VAT that will not be paid for lost products.
It is not only up to the companies to solve this problem because as mentioned above, black market practices and any crime in general affects country's economies.
Generally, the role of government in supply chain according to Management Paradise is:
-providing infrastructure
-establishing tax and custom policies
-giving restrictions or prohibiting certain goods on the local market
-issuing licences for the transporters
The stability of a country naturally has a big impact on the size of black market. As mentioned above, main 'customers' of the cargo stolen in the United States are in Latin America in countries that are not very politically or economically stable and some for us normal products such as food or medicine cannot be found easily from these counties. This is especially the case of Venezuela, where most medicine is impossible to buy from normal pharmacies and if people want to keep their relatives alive they simply have to go to the black market such as in this case. That's why we cannot see everything so black and white and say that black market is illegal and has to be forbidden.
Setting stability by the government is the first step to avoid the black market.
Sources
- What makes a good outsourcing strategy
- How does the black market affect the supply chain
- How to minimize the risks of thefts
1. What makes a good outsourcing strategy
One of our recommended textbooks (Contemporary logistics) states that there is no actual definition of outsourcing, also commonly called Third-party logistics (3PL) or contract logistics. The book describes this practice as 'one company allowing a specialist company to provide it with one or more logistics functions.' (Murhpy, P. & Knemeyer, A. p.101). These functions usually cover warehousing or outbound logistics. Nowadays we would hardly find a company that handles the whole logistics process without outsourcing. Why has outsourcing become so popular?
Flatworld Solutions suggests 8 reasons for using 3PL. I would like to mention those I find the most reasonable:
- Freedom to focus on critical operations
- Economy of scale (lowering costs per unit while producing higher volumes)
- Ensuring safety of goods through warehouse management system
- Enhanced customer satisfaction (most providers specialize only in logistics and thus provide the right kind of services the customer expects)
Unfortunately not everything runs always smoothly and 3PL can turn into a failure. The cause for this are usually unrealistic expectations from the user's perspective. Also, the provider is not as flexible as company's own logistics network would be.
And what makes the good strategy? I found a good description on Inbound Logistics. The article suggests to make sure the 3PL company has the same values and is aligned with goals and priorities. The it is necessary to do a risk assessment of various 3PL companies and after that make a request for proposal from provides assessed with the lowest risk. The selection itself should be based on the following criteria: reasonable costs (too low might be suspicious and it may end up being very costly), whether the 3PL company has an experience with handling similar kind of products as ours and if the company possess licences, certificates and relevant insurance.
To ensure the right choice has been made, the company may assign the outsources with a 'test' task and follow carefully if everything is handled as it should be.
Following these steps should definitely ensure smooth and effective logistics process. It is important to keep in mind that some problems that occur may not be the fault of 3PL company, but those should always have a procedure to predict, prevent or solve quickly various problems.
2. How to minimize the risks of thefts?
In today's globalized world, when a product has to go a long way to get all the way to the customer, there are naturally many threats on the way and cargo thefts are one of them. Thefts not only cause financial losses but they may cause a permanent psychological issues for truck drivers.
One way of minimizing these risks is to understand the way the thiefs work and then set appropriate protection as many stages as possible. The Inbound logistics gives some of the common strategies used by cargo thieves:
- gathering information on industrial parks, manufacturing and distribution facilities. Then they set surveillance system to monitor the shipment times and processes (trucks particularly).
- paying drivers at rest stop to give up the cargo or waiting for the driver to leave the truck unattended.
- Sometimes even drivers themselves may be part of a gang. They let themselves employ and after gaining trust and more valuable cargo they simply steal it.
After stealing the cargo and making sure the trucks are not followed, thieves usually get the goods to a 'warehouse' or other for them safer location to prepare the goods for reselling.
There aren't really any official numbers of thefts of cargo, because some companies prefer not even report the crime as it may cause bad publicity and delays in delivery which are decreasing trust of subcontractors. With the rise of thefts, insurance companies introduced new policies to avoid paying high amounts to companies affected.
Inbound Logistics gives some advice to prevent the thefts, I am going to include only some of them:
- using GPS tracking tools and security alarm if the trucks goes outside set route
- applying different systems of locks that prevent the tractor and the trailer from separating
- noticing suspicious things (such as foreign car parked outside of the premises) and instant action
- training employees for such situations- which includes self-defense practices, reporting procedure, psychological trainings etc. But also screening them and their previous activity and their background
Unfortunately, this situation cannot be avoided completely so companies should always be aware of it. Thefts do not concern only truck drivers but also ships, in a sense of maritime piracy, as decribed on How stuff works. Especially around Somalia, Indonesia or Bangladesh there are big risks of being attacked by pirates, who are trained and armed. In this case, the cargo is not usually the reason as stealing such large volumes might even be impossible. The pirates usually take the ship and the crew as a hostage and then require ransom.
3. How does the black market affect the supply chain
At Inbound Logistics, J. Palmer claims that the international global crisis has raised the demand for black market goods. In the United States, there is even a system to recruit and train cargo thieves. Who then steal cargo, which is then shipped mainly to poorer countries of Latin America. The revenues from the sales of stolen cargo is often used to finance activities of American gangs. There are even concerns that this money may be used to finance terrorist organizations.
Usually the most stolen goods are pharmaceutics, consumer electronics or food. Also very basic items such as bottled water are being increasingly attractive for thieves.
The stolen cargo doesn't mean just the financial loss of the stolen products but costs that follow, for example due to the theft, customers will not get their orders in time
-> they will complain, maybe require their money back and have a negative opinion about the company since then.
-> This means losing customers and their life-time purchases they would possibly do at the company.
-> As a result of a theft, the company will increase their prices because they will need more money to secure future cargo.
-> And also there is a loss for the government because of the VAT that will not be paid for lost products.
It is not only up to the companies to solve this problem because as mentioned above, black market practices and any crime in general affects country's economies.
Generally, the role of government in supply chain according to Management Paradise is:
-providing infrastructure
-establishing tax and custom policies
-giving restrictions or prohibiting certain goods on the local market
-issuing licences for the transporters
The stability of a country naturally has a big impact on the size of black market. As mentioned above, main 'customers' of the cargo stolen in the United States are in Latin America in countries that are not very politically or economically stable and some for us normal products such as food or medicine cannot be found easily from these counties. This is especially the case of Venezuela, where most medicine is impossible to buy from normal pharmacies and if people want to keep their relatives alive they simply have to go to the black market such as in this case. That's why we cannot see everything so black and white and say that black market is illegal and has to be forbidden.
Setting stability by the government is the first step to avoid the black market.
Sources
Flatworld Solutions. 8 Reasons to Outsource Logistics Services. Available from: https://www.flatworldsolutions.com/logistics/articles/outsource-logistics-services-8-reasons.php. Accessed: 4.2.2018.
How Stuff Works. Modern Maritime Piracy. Available from: https://people.howstuffworks.com/pirate5.htm. Accessed: 5.2.2018.
Huffpost. Black Market Medicine and Animal Drugs. Available from: https://www.huffingtonpost.com/rafael-osao-cabrices/venezuela-drug-shortage_b_9154498.html. Accessed: 5.2.2018.
How Stuff Works. Modern Maritime Piracy. Available from: https://people.howstuffworks.com/pirate5.htm. Accessed: 5.2.2018.
Huffpost. Black Market Medicine and Animal Drugs. Available from: https://www.huffingtonpost.com/rafael-osao-cabrices/venezuela-drug-shortage_b_9154498.html. Accessed: 5.2.2018.
Inbound Logistics. Logistics Outsourcing: A Panacea?. Available from: http://www.inboundlogistics.com/cms/article/logistics-outsourcing-a-panacea/. Accessed: 4.2.2018.
Inbound Logistics. The Cargo Theft Threat. Available from: http://www.inboundlogistics.com/cms/article/the-cargo-theft-threat/. Accessed: 5.2.2018
Management Paradise. Role of Government in Transportation. Available from: http://www.managementparadise.com/forums/elements-logistics-logs/200337-role-government-transportation.html. Accessed: 5.2.2018.
Murphy, P. Knemeyer. A. Contemporary logistics. Pearson global edition. 11th edition.
Inbound Logistics. The Cargo Theft Threat. Available from: http://www.inboundlogistics.com/cms/article/the-cargo-theft-threat/. Accessed: 5.2.2018
Management Paradise. Role of Government in Transportation. Available from: http://www.managementparadise.com/forums/elements-logistics-logs/200337-role-government-transportation.html. Accessed: 5.2.2018.
Murphy, P. Knemeyer. A. Contemporary logistics. Pearson global edition. 11th edition.
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