Power management firm benefits from bringing logistics back in house

20 January 2012

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20 January 2012 | Adam Leach

Having brought logistics back in house after five years of outsourcing, global power management company Eaton has learnt some valuable lessons and is seeing the benefits of having control again.

Speaking to SM, Les Ball, vice-president supply chain management EMEA region and worldwide global sourcing for Eaton, said having outsourced logistics for the EMEA region and developed the relationship with its lead logistics provider (LLP), the returns eventually began to diminish. “There became a lot of areas where you could see you were disadvantaged having outsourced and that the initial incremental benefits [such as leveraging higher volumes] had a very limited shelf life.”

Risk also played a part in the decision. Ball said bringing it back in under the company’s control meant that it was a direct priority to provide continued quality service. “It became clear, from a procurement perspective, that the third party doesn’t have the skin in the game if you completely outsource it. So we took the strategic decision that we were going to establish an internal competency within the procurement team.”

Once the internal logistics team, composed of five procurement specialists, was established, the company started to get better deals from carriers, which were reluctant to offer their best rates to a competing LLP. “One of the things it has done is sped up access to better deals with a cross section of better partners, whether its road, ocean or air freight. From a procurement point of view, negotiations that were not available before because of barriers from it being through a third party are now available.”

Despite being confident that taking control of the function again would offer the greatest value, there were factors that made it more difficult to take the idea forward initially. “Obviously creating a headcount, in particular at this sort of time, was not that popular.” However, having done so, he’s happy with the results. “We completely turned the strategy on its head and probably would be very reluctant to go with an LLP again.”

But the original decision to outsource was vital to the development of internal capabilities. “Outsourcing was an enabler, there’s no doubt about it. It was necessary to give us the impetus to leverage some practices that we maybe weren’t aware of and just see exactly how it would work. From that we had a straw man that we could dissect and see how we could do it better.”

Eaton spends a total of $100 million (£64.7 million) on freight a year for its EMEA operations.

 


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