4: Make outsource decisions

1. Evaluate core competencies

Start by determining if logistics is one of your organization’s core competencies. You can break down this evaluation into specific logistics capabilities, such as fulfillment services, warehousing, transportation, and reverse logistics. For many organizations, logistics may not be a primary area of expertise, so outsourcing can free up resources to focus on core competencies such as public health policy development.

For instance, if a Ministry of Health (MoH) has strong capabilities in managing laboratory services or forecasting medical supplies, these functions may be best retained in-house to ensure accuracy. Conversely, logistics functions like non-critical transportation could be outsourced to reduce internal resource strain. Balancing internal expertise with outsourced support can optimize logistics performance while maintaining control over strategic operations.

2. Assess future network design

Using insights from previous steps, define one or multiple ideal future network design options. This involves outlining improvements to your current logistics network, such as potential distribution channel segmentations, or operational improvements based on route optimizations. Key logistics components to assess include warehousing facilities, transportation assets, and information technologies. Evaluate these against their fit, effectiveness, and ability to adapt to future demands & changing needs. This will give you a clearer idea of which logistics functions to keep in-house and which to outsource.

For example, if your current network lacks scalability to meet future demands (e.g., expanding rural health delivery), outsourcing transportation and warehousing might provide access to more adaptable and efficient solutions.

3. Determine if a 4PL is necessary

If your analysis points to the decision to outsource some or all logistics activities, it is important to determine whether engaging a 4PL provider is necessary for managing the outsourced operations. A 4PL can be highly beneficial if your logistics needs are substantial and require strategic planning and coordination, particularly in segmented distribution networks or large-scale health programs such as nationwide health campaigns or emergency response initiatives. The 4PL acts as a logistics integrator, managing multiple 2PL and 3PL providers, ensuring efficient collaboration and streamlined operations. This approach offers flexibility and responsiveness in dynamic public health environments where logistics demands can fluctuate rapidly.

Key considerations when engaging a 4PL include:

• Complex, multi-regional operations: Ideal for logistics needs spanning multiple regions that require integrated management and strategic oversight

• Specialized expertise: Beneficial when specific logistics expertise or technology (such as advanced tracking systems) is required, but not available in-house

• Flexibility & scalability: Useful when logistics operations need to quickly scale up or down to respond to varying demands, such as during emergency health responses or unpredictable market conditions

However, there are also key situations were engaging a 4PL might not be suitable:

• Simpler logistics needs: For organizations with straightforward logistics needs that can be effectively managed in-house or with minimal external support, the complexity and cost of a 4PL may not be justified

• Direct operational control: If retaining direct control over logistics processes is a strategic priority, or if there are significant concerns around data sharing and control, a 4PL may not be the best fit

• Budget constraints: If budget limitations do not support the additional cost of a 4PL, particularly when in-house logistics capabilities are adequate for your needs

For example, a 4PL may be the best option for managing logistics in a nationwide health supply chain, where multiple providers are responsible for different aspects such as warehousing, cold chain management, and last-mile delivery. A 4PL can ensure seamless coordination between these providers and integrate advanced technologies for tracking and reporting. This approach is particularly beneficial if the organization lacks experience in managing a variety of LSPs across different levels of the supply chain. On the other hand, if the logistics needs are more straightforward, such as managing a single distribution channel for routine medical supply deliveries, a 3PL may provide sufficient capabilities at a lower cost.

4. Develop business case

Build a comprehensive business case comparing insourcing and outsourcing options. This analysis should include cost comparisons, performance evaluations, and risk assessments to quantify the potential benefits and challenges of each approach. Use both internal and external data sources, such as historic logistics data and insights from the LSP market assessment, to underpin the business case.

• Cost analysis: Compare the total costs of insourcing (fixed and variable) with outsourcing costs, considering direct and indirect expenses

• Performance evaluation: Assess current logistics performance and compare potential improvements from outsourcing

• Risk assessment: Evaluate risks of both options, such as operational risks, compliance issues, and potential impacts on service levels

• Strategic alignment: Analyze how insourcing or outsourcing logistics aligns with long-term organizational goals and public health outcomes

For instance, if outsourcing warehousing for cold chain management can improve service reliability and reduce product losses, this should be clearly highlighted in the business case.

5. Make insource or outsource decision

Apply detailed criteria to decide whether to insource or outsource specific logistics activities. Please consider:

• Strategic alignment: Does the logistics function align with your organization’s strategic objectives? If not, would outsourcing better meet these goals?

• Capability & expertise: Does your organization have the necessary capabilities to manage logistics in-house, or would an external LSP offer superior expertise?

• Cost & efficiency: Which option - insourcing, outsourcing, or a combination - provides the best value for money while maintaining or improving service levels?

• Impact on service delivery: How will the decision impact your ability to deliver services to your customers? Will outsourcing improve or disrupt service delivery?

• Flexibility & scalability: Does outsourcing offer greater flexibility to adapt to changes in demand or future growth?

For example, outsourcing transportation for nationwide distribution might reduce operational costs, while maintaining internal control over forecasting ensures accuracy in demand planning for essential medical supplies. These criteria will guide whether to fully outsource, insource, or adopt a mixed approach.