For decades, Walmart has been the undisputed front-runner in US retail sales. One of the significant factors that contributed to its success is its tight control over its retail logistics. As a result, it holds a comfortable edge over its competitors like Kroger, Costco, and Target due to its profitable fleet mix decisions.
While making fleet mix decisions for the last mile, retail businesses face an important question: Which way is best for a retail business—owned or outsourced fleet? Let’s jump right in to seek answers to this crucial question.
Read Also: Captive vs. Outsourced Fleet – Math behind Transportation and Distribution
What are in-house and outsourced fleet management?
In-house fleet management is managing the fleet operations for logistics with the internal assets and resources. In contrast, outsourced fleet management is outsourcing the logistics and fleet management operations to a third-party delivery business rather than handling it internally.
Difference between in-house and outsourced fleet management
There are significant differences between in-house and outsourced fleet services across a few factors as listed below.
| Factor | In-house fleet | Outsourced fleet |
| Control | Greater level of control over the delivery operations. | More chances to lose some control over delivery operations. |
| Customer experience | Greater control over logistics enables businesses to build a strong and deep level of connection with customers on the field. | Existence of middlemen could result in a fall in customer engagement. |
| Communication flow | Communication flow is effective and direct between customers and businesses and fleet managers and drivers. | Difficult to expect an efficient flow of communication as logistics partners handle the communication channels. |
| Visibility | Full visibility of delivery operations. | Chances of losing some visibility over your logistics operations. |
| Investment | A sizable upfront capital investment is required. But over time, greater flexibility and higher control yields decent returns for companies of smaller scale. | It may not require upfront capital investment but it has to deal with rising average delivery cost per order as their business requirements increase. |
| Accountability | The accountability of the workforce is higher for in-house fleets as they directly report to you. Also, your business has direct communication with customers and can take detailed feedback to improve your business. | If the logistics partner commits a mistake, it reflects on your company. Your business is only outsourcing the workload, but still answerable to the customer. |
| Maintenance cost | Training staff and building a maintenance facility for fleet maintenance activities involve a sizable maintenance cost. | As businesses need not employ their internal resources, no maintenance costs are involved. |
| Risk factors | The changing regulations and industry standards make it difficult for in-house fleets to meet compliance. | Businesses need not get into the compliance risks when they prefer outsourced fleet management. |
| Focus | The business must dedicate considerable time, energy, and resources to monitor, optimize and maintain the fleet. | Businesses can entirely focus on their core business competency when outsourcing fleet management operations. |
| Efficiency of scale | Managing an in-house fleet is costly as there are cascading costs relating to training high-quality personnel, acquisition, maintenance, disposal, repurchase costs, and their primary costs of core business operations. | As fleet management is the core business of third-party delivery companies, they can meet fleet needs cost-effectively compared to individual companies. |
Factors that determine whether retail businesses should opt for owned or outsourced fleet
Being a retail business, you might have heard a lot of noise made from multiple directions on this question, and we understand that might be puzzling about whether to opt for an owned or outsourced fleet. But don’t worry: You are not alone.
Before finalizing your fleet management approach, it is crucial to understand the factors that determine them. This would help avoid the confusion you face while making this decision.
1. Delivery volumes
The decision to opt for an owned or outsourced fleet depends on the delivery volumes you deal with daily.
The most important question is whether your business can handle enough delivery volumes to keep your resources engaged. Recruiting and managing drivers for an entire working shift becomes highly expensive, especially when most deliveries take place in a small time frame, often just two hours a day. You require accurate predictability in demand to keep your in-house team operational at full capacity.
Your business can opt for an owned fleet if it has enough delivery volumes flowing throughout the day to engage your resources for a long working time. Else, it is optimal to choose outsourced fleets.
Read Also: How to improve fleet utilization
2. Availability of capital and labor
A key issue plaguing the global logistics industry is a shortage of drivers. A survey forecasts that driver shortage is expected to climb up to a staggering number of 162,000 by 2030.
Coupled with a rise in operational costs, hiring, training and managing drivers has become arduous for businesses. For building an in-house fleet, it is necessary to have enough capital to purchase or lease vehicles that are needed. Also, it is equally important to hold enough capital to employ the necessary workforce that fulfills your deliveries.
If your business doesn’t have enough capital to fetch vehicles and labor to carry out your daily delivery tasks, opting for an outsourced fleet is advisable. This is because it allows your business to focus on other business operations and makes your deliveries cost-effective at a certain scale.
Read Also: Unit Economics in Last-mile delivery
3. Expansion plans for the future
Every growing business aims to expand its customer base and scale up its deliveries quickly. But expanding deliveries to multiple locations simultaneously is challenging and risky.
While testing the new markets for your deliveries, it is better to leverage outsourced fleet services. It helps your business quickly identify demand, avoid high costs, and minimize risks and capital expenditure in those new markets.
Read Also: Bringing Order to chaos – Last-mile delivery costs and how to reduce them
4. Gaps between pricing and margins
Last-mile delivery is a supply chain’s most expensive component, contributing to 53% of its costs. When planning to outsource fleets for last-mile logistics, factoring in the gaps between pricing and margins is essential.
Imagine that the average delivery basket size of your business is $20. Your business won’t stand to gain if you pay $15 per drop to your third-party logistics provider. Third-party logistics service providers must maintain a profit margin on making deliveries. When logistics providers increase their profit margins, your profit margins fall.
If the gap between pricing and margin is high, your business can opt for an outsourced fleet. Else, it is advisable to work with an in-house fleet.
5. Safety and regulatory requirements
Another primary factor determining the decision to opt for an owned or outsourced fleet is the safety and regulatory requirements, particularly for products like alcohol, pharmacy, and cannabis deliveries and those involved in white glove shipping. As these products require safe and professional handling, only an in-house fleet can effectively manage them.
But if your business deals with products that do not require extra care and professional handling during shipping and packing, it can opt for outsourced fleets.
6. Data security
While using an outsourced fleet, getting customer-specific information comes with a certain opacity, which makes it challenging to provide coupons and discounts to your loyal customers.
Working with an owned fleet is appropriate if your business wants to harness, protect and leverage customer data for upcoming deliveries.
7. Customer Experience
Businesses often overlook the most crucial aspect of last-mile delivery – providing a delightful customer experience. If your company wants to offer a consistent premium customer experience and quality control over deliveries, it isn’t easy with a third-party logistics service.
The outsourced fleet primarily focuses on timely deliveries and not providing a quality customer experience. Given that these drivers do not fall under your management, there is little scope for training them to offer a quality delivery experience to your customers.
With an owned fleet, the scope improves as your business can train your drivers to build an effective driver-customer relationship in the final mile. But if your company wants to serve a broader base of customers in different areas, it is optimal to prefer outsourced fleet management.
8. Delivery costs and time
| Costs involved while using an owned fleet | Costs involved while using an outsourced fleet |
| Initial capital to own or lease fleetFleet maintenance costsHiring costs for warehouse and shippingTraining costs for resources Warehouse maintenance costs | Additional commissions for longer distancesAdded payments for reattempted deliveries Separate basket fee for deliveries attached to cost-per-mileData security costsCosts due to misaligned coordination with carriers |
When a business serves a lesser number of customers or a smaller customer base, it is optimal to start with an in-house fleet. It requires a small set of dedicated on-ground workforce and a fleet manager to plan, strategize and manage delivery operations.
After some time, when the business grows, the company shouldn’t stick with the internal resources or expand them further. Because as the scale of delivery increases, companies need to have predictability and flexibility in their operations. A business must set out dedicated time, energy, resources, and costs to manage the delivery operations when it grows.
If a business wants to focus on its core competencies and add more value, it is optimal to prefer outsourced delivery operations.
In-house fleet management is preferable if your business wants to actively interact with customers through discounts, coupons, and free deliveries. In this scenario, a company must dedicate a sizable chunk of resources, time, and added costs to manage the delivery operations with in-house teams. So, in-house fleet management comes in handy for businesses that aim for hyper-personalized deliveries and delightful customer experience.
Optimal fleet mix and visibility over third-party deliveries – Two big questions
As discussed in the previous section, the owned or outsourced fleet has pros and cons. The decision to go entirely with an owned or outsourced fleet varies for every business, and there is no rule of thumb. But there are some critical questions that companies directly or indirectly involved in logistics operations face.
- Can I obtain better visibility over third-party deliveries?
- What is the optimal fleet mix for my business?
Businesses that manage a fleet in-house need help finding the optimum combination of in-house and outsourced fleets.
Another question relates to businesses that outsource their delivery operations to another third-party company. They want to know if they can obtain better visibility over third-party deliveries.
Yes, both are possible. Another question arises here. Which software to invest in to make both these aspects possible? The single answer is Locus.
Locus’ Customer experience and dispatch management platform – Go-to-tool to for your fleet management operations
With an intelligent fleet mix calculator, the Locus dispatch management platform helps businesses plan the right combination of owned and outsourced fleets. They can view their updates on a single screen even if they handle captive, contracted, and outsourced fleet operations. It provides intelligent recommendations for an optimal fleet mix based on regulations, contracts, resource availability, the density of orders, and other factors.
With its advanced automation capabilities, Locus’ customer experience and dispatch management platform helps your business group, schedule, and manage the workflows of thousands of orders daily. Its rule-based carrier selection algorithms provide optimal carrier recommendations for your deliveries based on various real-life constraints such as costs and service level agreements. By leveraging on-ground data, it computes and verifies payment amounts and reconciliation, resulting in better compliance to contract terms.
With its ShipFlex solution, Locus helps businesses expand their customer base with same-day and next-day deliveries while providing branded tracking experience even on third-party carriers. It’s easier for any company to integrate the Locus platform with an extensive third-party delivery network. This ease of integration makes it easy and accessible to manage all shipments in one place.
Locus’ route planning software generates the optimal route after factoring in more than 180+ real-world constraints like traffic and time windows. It enables businesses to plan routes for scheduled, dynamic and recurring deliveries, ensuring drivers complete their tasks before the planned time. Also, it helps companies to plan quicker and more cost-efficient routes for returns and forward deliveries simultaneously. Overall, Locus’ offerings help businesses manage resource availability challenges and high delivery expenses arising from returns management and make it seamless.
Want to build an optimal fleet combination and add visibility to your third-party deliveries?