1: Review current operations
Purpose
The purpose of this step is to thoroughly assess your current logistics operations to understand existing capabilities, identify areas for improvement, and establish a baseline for performance and cost. This step is essential for making informed decisions about logistics outsourcing and optimizing supply chain management.
Key activities
The key activities for this step include:
Document customer requirements: Understand current logistics requirements and anticipate potential future logistics needs
Document demand: Review past, current, and forecasted demand to guide planning and resource allocation
Review network design: Map and evaluate whether logistics facilities are optimally located, have sufficient capacity, serve the right geographic scope, and meet quality standards
Analyze performance: Measure service performance, quality, efficiency, and effectiveness of logistics processes to identify strengths and areas for improvement
Determine costs: Compile the total costs of logistics operations to evaluate overall cost-effectiveness as well as understand the cost to serve specific customers, channels and/or products
Routine data collection & analysis: Standardize the approach to routinely gather and analyze data to support decision-making
See detailed activity descriptions at the bottom of this page.
Key output
By completing Step 1, your organization will gain a comprehensive understanding of its current logistics operations, including customer requirements, demand, network design, performance, and costs. This review establishes a baseline, enabling more objective decision-making when comparing in-house logistics with potential outsourcing. Having this clear picture of current operations is critical to ensuring that any outsourcing strategy is based on accurate data and tailored to your organization’s goals and logistical needs.
Supporting resources
Detailed activity descriptions
Document customer requirements
To ensure your logistics operations are aligned with both current and future needs, begin by documenting your customers' logistics requirements. This involves understanding what logistics support is currently required (e.g., delivery timelines, product handling needs) and anticipating how these needs may change. For instance, if customer demands are likely to shift due to expanding health services or more patient centric, climate adapted and sustainable systems, capturing this information upfront is critical. Engage with key stakeholders to gather insights on both current needs and anticipated changes. This forms the foundation for ensuring that logistics operations are flexible enough to adapt to evolving demands.
Document demand
Once you understand the customer requirements, the next step is to analyze the demand for logistics services. Begin by assessing historical data on demand trends (e.g., shipment volumes, seasonal fluctuations). This provides a clear view of how much volume is being handled and where. Next, assess current demand by examining orders, inventory levels, and regional needs. Forecasting future demand is essential for preparing your logistics operations, particularly by considering factors like population growth, policy changes, or health crises. This step provides clarity on both current needs and long-term projections, ensuring that resources are appropriately allocated.
Review network design
Before optimizing the logistics network, it's critical to first map and fully document the current network. This includes the locations of warehouses, their capacities, transportation routes, distribution points, and any other logistics assets. Having this foundational map will ensure that the organization understands the full scope of its network, which is necessary for making informed decisions later. Once the current network is mapped, you can evaluate whether it supports cost-effective and timely delivery of goods and is fit for expected future needs. Map the flow of goods and information across the network to identify bottlenecks or inefficiencies. After understanding the current structure, consider potential improvements, such as relocating, adding and/or removing storage facilities or optimizing transportation routes to enhance service performance and/or reduce costs.
Analyze performance
Assessing the performance of your logistics operations involves measuring both service performance and operational efficiency. Evaluate Key Performance Indicators (KPIs), such as on-time, in-full delivery rates, order cycle times, product loss, and inventory turnover, as well as operational metrics like regular & non-regular (emergency) orders, excess & insufficient inventory, and truck capacity utilization. For example, monitor the condition of goods upon arrival and whether delivery timelines are consistently met. By measuring these metrics, you can identify areas for improvement in both service and operational performance. Regularly tracking performance data helps ensure that logistics operations remain efficient and meet your organization's service-level goals.
Determine costs
Now that performance metrics have been assessed, it's important to evaluate the costs associated with logistics operations; both the overall costs as understanding the cost to serve specific customers, channels and/or products. Assess both direct and indirect costs, including transportation, warehousing, labor, and any value-added services like packaging or quality assurance. Include costs that arise from inefficiencies, such as non-regular (emergency) shipments due to insufficient planning, to capture a full picture of financial performance. Develop a cost analysis framework to calculate the cost-to-serve specific for distribution channels and/or product categories. Combing the cost analysis with the analyzed performance allows you to evaluate (overall) cost-effectiveness. This cost analysis is essential for understanding your logistics operation's financial performance and identifying areas for potential savings.
Routine data collection & analysis
To support all the above assessments and enable routine analysis going forward, standardize the approach for continuous data collection and analysis. It ensures that you have the right data in place to make informed decisions about every aspect of your logistics operations. The ideal scenario is to collect data (near) real-time for the most accurate information and establish a continuous improvement culture. If this is not (yet) feasible, consolidate data from various sources to form a comprehensive picture. For example, gather shipping records, warehouse inventory logs, and customer feedback to assess the effectiveness of your logistics operations.