While the trend is clearly to use an outside provider and move many of these functions to low-cost regions, some larger organizations have set up captive centers. That work may be done by company employees, but it can now be done in Mumbai or Shanghai or some other low-cost location, says Vachani. Other companies have benefited from the critical mass created by larger organizations outsourcing transactional processes. In areas where these functions are concentrated, the talent pool of skilled transportation and logistics workers benefits shippers, carriers, and 3PLs.

There are other factors to consider in business process outsourcing, says Vachani. On paper it can look like a good deal, but if you have not looked carefully at the other legal aspects, compliance, tax and other issues, it could come back and have a significant impact.

India continues to lead the pack for business process outsourcing, notes Vachani, and people talk about costs going up because of wage inflation. But wages are only typically 30% of the cost structure, he explains. The remaining 70% is related to infrastructure–real estate and telecommunications. And for large players in the BPO arena, those costs are going down. The cost advantage will still be there for at least seven years, he estimates.

Vachani offers an example of a US exporter who must perform deniedparty screening. The process of examining each transaction for compliance and maintaining up-to-date resources can become very labor intensive. The costs of non-compliance are also high. It’s a simple cost equation, he says. The BPO has people at a low rate who can be thrown at the problem.

Outsourcing to a US-based company can solve the manpower issue, admits Vachani, but that doesn’t offer the same cost cutting opportunity as going offshore. Throw in other parties the company is dealing with– 3PLs, information technology providers, etc.–and the problem of managing the details spirals out of control. As things get more complicated from a compliance and security point of view, costs start to rise, and you still have to get the work done in a cost effective manner, says Vachani.

Global trade is booming, concludes Vachani, and rising with it is the challenge of how to take advantage of markets when and where they are developing. Following the shifting tides of trade will continue to demand more of supply chains. Getting the most from lean internal resources will require a less transactional focus and a more strategic view, and that’s where business process outsourcing firms hope their offer will fit a wide range of needs.

The Outsourcing Experience

Already experienced with domestic outsourcing, logistics professionals are expanding their use of third party logistics providers (3PLs).

At the top of most lists of commonly outsourced functions is domestic transportation. Responding to a survey by Capgemini, 91% of European executives indicated they outsourced domestic transportation. (85% of executives in the Asia Pacific region indicated they outsourced domestic transportation, followed by 79% in Latin America and 77% in North America.)

Except for Latin American executives, over two thirds of executives in each region–North America, Europe, and Asia Pacific–said they outsourced warehousing.

The 12th Annual State of Logistics Outsourcing report based on the global study paints a picture of companies focusing on minimizing the number of assets they are committing to in their supply chains. In fact, outsourcing provided overall logistics cost reductions of 13% and reductions in fixed logistics assets of 18%. Latin American and European executives reported the largest reductions in fixed assets–25% and 20%, respectively.

Responses indicated a very low rate of outsourcing for transaction-intensive areas like freight bill audit and payment and order entry, processing and fulfillment. These and other functions are the target of business process outsourcing companies who make the case that taking over responsibility for many of these functions frees a company’s human resources to concentrate on more customer-facing and strategic areas.

Satisfaction runs high for users of outsourced logistics. Latin American executives had the lowest satisfaction level at 76% while executives in other regions were all above 85% in satisfaction with the results of their outsourcing efforts. Virtually every region expects to increase the percentage of logistics expenditures directed to outsourcing in the next three to five years.