Critical Analysis of RBC’s Logistics Outsourcing and Transportation Costs

Introduction

Rubbermaid Corporation (RBC) is a retail company located in Melbourne. The company started as a wholesale clothing supplier, but later on became a total line clothing manufacturer and retailer in the B2B and B2C markets all over Australia. The company used to use its own logistics fleet to ensure timely delivery of service, which used to differentiate the company against its competitors. Later, the company signed a contract with Kaiger Logistics, which is a third-party logistics (3PL) provider to minimise the logistics challenges and improve service delivery outcomes.

The outsourcing decision significantly reduced the cost, but the level of responsiveness became low which led to customer dissatisfaction, and also resulted in the loss of company’s old and potential customers. This report aims to assess the critical components of RBC transportation cost, and the logic behind outsourcing. This report also provides few recommendations to the company to overcome the current logistics issue. The results highlight the fact that although outsourcing brings multiple advantages, but customer responsiveness should remain the top priority of RBC logistics strategy.

Critical Components of RBC’s transportation cost  

Transportation costs is one of the critical aspects in a supply chain, as they play a critical role in maintaining the supply chain operations successfully (Izadi et al., 2019). For RBC, there are multiple critical components that are associated with transportation cost.

Maintaining the fleet operation cost:

For RBC, maintaining in-house logistics fleet is a critical component, as it requires certain problems to be fixed and also need cost expenditure. In-house fleet operations require fuel, which poses a long-term financial burden. This is because the cost of the fuel is vulnerable as it fluctuates with the economic conditions (Gao et al., 2019). Moreover, in case of failure of the contactors to repair and maintain the transportation fleet on time, the delivery of orders is affected. In such cases, RBC not only has to experience loss in order delivery and lose potential customers, but also has to pay for delivery substitutes. In addition, according to Sayed and Sayed (2020) fleet management comes up with further challenges including driver unavailability, environmental issues, safety, security, mishaps and routing and arranging issues. All these issues collectively add to the complexity of fleet management for RBC.

Managing labour cost:

Managing labour costs is another critical component of RBC’s transportation cost. Labour absenteeism can cause operational delays and poor working conditions (Baccichetto et al., 2024). In case of labour shortage, RBC has to face operational delays and customer dissatisfaction, which also poses a negative impact on the transportation cost and overall profit of the company. The case study reports incidence of labour shortage which made the company pay extra to replace drivers. This imitates inconsistency with labour availability, which shows that it is difficult and uncertain for the company to control costs and expense associated with labour.

Emergency outsourcing due to contract failure:

The company has to rely on external contractors, which creates cost inefficiencies. It has been mentioned in the case study that RBC signed a contract with a vehicle maintenance company, which failed to maintain and deliver the vehicle on time. As a result, the company had to hire another external logistics provider. This doubled the budget for the company as it has to pay for the new service provider and also had to pay for the lost service of its own vehicle. This undermines cost control as the company has to look for outsourcing services in case of emergency situations, which can compromise on cost, quality and speed as well (Feng et al., 2019).

The analysis of RBC’s decision to outsource Kaiger as a third part logistics provider:

The decision of RBC to outsource logistics services from Kaiger, served both, positive as well as negative impacts. The decision led to the reduction of cost, but on the other hand, it also made the company loose its potential and old customers. Below are some benefits and challenges associated with outsourcing third partly logistics service provider, which is explained according to the RBC’s case.

Benefits:

Reduction of travel cost expenditure:

As mentioned in the case study, the decision to outsource third party logistics service form Kaiger significantly reduced the per kilometer cost required to travel in the North and South clusters. This resulted in substantial savings for the company. This has also been mentioned by Mageto (2022) that outsourcing logistics services helps companies in reducing travelling costs. This counts as a benefit for RBC, to outsource Kaiger as a 3PL service provider.

The need to hire a vehicle maintenance contractor eliminated:

Another positive aspect of outsourcing 3PL in RBC’s case was that it eliminated the need of the company to hire a vehicle maintenance contractor to maintain or repair the company’s own transportation fleet for logistics. This made the company shift its focus to other activities, as according to Gonzalez (2022) a 3PL service provide core shipping and transportation services which enhances the effectiveness of the overall services, so that the companies can focus on their core business activities. Considering the fact, that outsourcing external logistics service, RBC did not need to hire other vehicle maintenance contractors and other service providers, this could be added as a positive impact of RBC’s 3PL outsourcing decision.

Reliability of operations:

Another positive experience for RBC to outsource a 3PL service was the reduction of driver absenteeism, which resulted in smooth operations. This eliminated the need for the company to look for alternative options, or replacing drivers and vehicles in cases of emergency or labor shortage. This can also be counted as a positive aspects of RBC’s decision of 3PL outsourcing.

Challenges:

Lack of customer responsiveness

Kaiger’s policy of starting delivery service only when the vehicle is fully loaded with orders posed a negative impact on customer responsiveness and rapid delivery tradition of RBC. According to Asamoah et al. (2021) adhering to customer responsiveness in logistics is essential to maintain market competitiveness, brand equity, customer satisfaction and customer retention. According to the case, RBC started receiving requests from its high value clients to cut off delivery time, which was not entertained by Kaiger due to their own delivery policies. This negatively impacted the delivery time and customer responsiveness, which a major reason for RBC to gain market competitiveness in 2009-2010.

Requirement of investment to update technology:

To add the Kaiger’s tracking system and to enhance the effectiveness of logistics operations, RBC had to invest in the installation of technology, which would have further complicated the cost-benefit analysis. Adding tracking system would have made delivery of fragile or high value items easier, but it would have costed a substantial amount for RBC. This was another negative impact as the company had to pay extra for the tracking service.

Loss of customers:

One major negative impact of outsourcing logistics services from Kaiger was the loss of its customers. As noted from the case, the company lost 135 customers in 6 months, in which 3 of them were high value customers. This was a major drawback for the company, as it would lead to rapid decline in orders and will also impact customer satisfaction and loyalty.

Considering the benefits and challenges associated with outsourcing 3PL in RBC’s case, it could be said that the decision led to unexpected, negative outcomes. Hadiyanto (2021) has emphasised on the importance of customer retention in generating long term financial outcomes, as higher retention leads to higher market share and higher income. Moreover, existing customers also have the potential to generate more income than new customers. In the case of Kaiger services, a lack of customer responsiveness led to adverse effects, including a loss of 135 potential customer and their expectations.

The loss of RBC’s potential customers due to 3PL outsourcing was indeed a bad decision, as it not only made the company loose its high value customers but also impacted the long-term profitability of the company.