Abstract
This paper is based on a revelatory single-case study that uses a system dynamics model to analyze the costs and policies of a distribution logistics outsourcing process (i.e., the warehousing and transportation activities) of a Brazilian consumer packaged goods (CPG) company. The model considers the costs before and after the outsourced operation startup and how these costs influence the net present value (NPV) of the process. The model’s findings suggest policies, such as the reduction of the ex-ante period and the ex-ante reactive and proactive monitoring of operations, to obtain optimal financial results. In addition, the model provides guidelines for the contract lengths and demonstrates that in the outsourcing process, the greatest gains result during periods of low inflation and low interest rates in a stable economy.
Highlights
The logistics outsourcing decision-making process entails the selection of a third party logistics (3PL) provider
According to Vivaldini et al (2012) logistics outsourcing from its simplest form to the most sophisticated, as with any other acquisition of logistics services, is a complex activity because it is the purchase of a process; it is very different from the purchase of goods or parts of products and components
Knowing the dynamics of the logistics outsourcing process, the results show the variations in key performance indicators and indicate whether the financial objectives of the process were reached
Summary
The logistics outsourcing decision-making process entails the selection of a third party logistics (3PL) provider. This research aims to present a system dynamics model based on Forrester’s seminal work (1971) by considering trust relationships (Kim et al, 2008; Luna-Reyes et al, 2008) and other important factors in the several phases or steps of the logistics outsourcing process, namely, information leakage and employee morale, operational monitoring, and the 3PL employee learning process. This type of model will help to maximize the positive economic results of the outsourcing process for the contracting company
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