Logistics Outsourcing: Why Do Not Some Italian SMEs Adopt the Externalization?

Abstract

Logistics is a one of the common function that companies usually outsourced. The decision to keep this function in-house or contract with one or many third-party logistics (3PL) companies is entirely strategic and can dramatically impact any organization's bottom line. 3PL users report an average of 44% of their total logistics expenditures are related to outsourcing. 72% of firms are increasing their use of outsourced logistics services in 2015, which is up slightly from the average reported in recent years. Most developed outsourcing logistics market belongs to the U.S. with 88%. It is followed by Asia 48%, and Europe -46% (O'Reilly, 2010). In Italy some industries can reach the 70%, in particular food, groceries and fashion (Osservatorio Contract Logistics del Politecnico di Milano). There are many researches about logistics and large enterprises. There are less studies about Small and medium-sized enterprises (SMEs) and logistics outsourcing. SMEs play a major role in the Italian economic system. Their business activities have become an important component of the Italian economy. This paper aims to depict the adoption level of outsourcing by Italian SMEs. By direct interviews to 28 companies' representatives we investigate which services or processes are outsourced. We investigate the reasons why companies adopt or don't adopt the externalization. Moreover, for every company we calculate the logistics costs of simple logistics processes. In effect, we wish to compare the logistics costs communicated by the firms and the same costs calculated with ABC (Activity Based Cost) model. This research demonstrate that SMEs adopt 3PLs only for transportation. SMEs do not know all the logistics services offered by 3PLs and SMEs think the services are dedicated only to large enterprises. Finally, many companies are not able to calculate logistics costs, then they cannot compare a 3PL offer with their real costs.

An Analysis of Third Party Logistics’ Performance and Customer Loyalty

“…Liu & Lyons (2011) even stated that excellence in operations of 3PLs was more important than wide-ranging service provision. Related to cost performance, Payaro & Papa (2017) found out that among the reasons why companies get outsourcing services for their logistics operations, low costs and high service quality were important. Panayides (2007) stated that for improving general logistics service performance, strong relations built with the customers played an important role and efforts aiming to improve this relationship should be increased.…”

“…Researchers refer to logistics outsourcing as 3PL, external logistics services and contract logistics (Razzaque & Sheng, 1998;Zailani et al, 2017). Services that a 3PL provide are transportation, warehousing, inventory management, material handling, cross-docking, reverse logistics, freight forwarding, customer service and information-related services (Ellinger et al, 2008;Mothilal et al, 2012;Park & Jeong, 2016;Zailani et al, 2017;Payaro & Papa, 2017). But not limited to only these, 3PL also performs various value-added activities like packaging, order processing, bar coding etc.…”

“…For example, in Japan about 70% of the companies outsourced its main logistics operations to 3PLs and in the United States, about 42% of the companies implemented logistics outsourcing (Li et al, 2012). In Italy in some industries, like food and fashion, it reached about 70% (Payaro & Papa, 2017). On the global scale, it is estimated that about 40% of the global logistics services will be outsourced (Jiang & Qureshi, 2006).…”

Digital platforms and international performance of Italian SMEs: an exploitation-based overview

“…For a long time, foreign markets have been considered by Italian SMEs as "places" in which to sell Italian products (D'Angelo et al, 2013) or to use for increasing cost-profit efficiency through externalisation practices (Payaro and Papa, 2017). Such a view seems to have radically changed in the last few years because of the emerging relevance of so-called "global brands" which are able to influence market's perception and evaluation thanks to their ability to be perceived as worldwide companies, which are not strictly related to the image, history and culture of the countries in which they are located or were the manufacturing activities are conducted (Bengtsson et al, 2010).…”

Supply chain management practices as a competitive tool for third party logistics providers performance

“…Academics term logistics outsourcing 3PL, services of contract logistics and external logistics (Zailani et al, 2017). 3PL services include storage & warehousing, inventory control, handling of goods, reverse logistics, crossdocking, transportation, freight forwarding, information services and customer support (Ellinger et al, 2008;Payaro & Papa, 2017). Yet 3PL has not only done these, but also performed several value-added operations not limited to packaging, processing of orders, bar coding among others (Mothilal et al, 2012).…”