Challenges experienced when outsourcing logistics in South Africa: a case of Lolli Supermarkets.

Abstract

The effective and efficient operation of distribution centres is a goal for all retailers using the distribution centre strategy. It therefore becomes imperative to strategically position all available resources in order to achieve a smooth operation. This has led to the emergence of outsourced logistics service providers in South Africa to enhance efficiencies while retail organisations focus on the core functions of their business. Lolli Supermarkets makes use of third party logistics (3PL) service providers to achieve delivery efficiencies and cost saving in the distribution centre. The aim of the study is to identify challenges and determine where 3PL service providers are fulfilling their strategic role and where they experience challenges that result in the provision of suboptimal services to distribution centres. This study further attempts to achieve the following: firstly, to identify the challenges Lolli Supermarkets experience with its reliance on 3PLs. Secondly, to determine whether 3PL service providers are fulfilling their strategic role to improve order replenishment. Lastly, to determine whether Lolli Supermarkets are experiencing challenges with 3PL service providers with regards to product availability and as a result provision of suboptimal services by the 3PL service provider. This allows the study to analyse the impact of outsourcing in retail organisations while also evaluating any changes that may be encountered under developing economy conditions. An exploratory design was used to identify the challenges that result in suboptimal services provided by 3PL service providers. Thematic analysis was used to analyse the data collected from sixteen respondents who form part of Lolli Supermarkets management and two respondents who form part of management of the 3PL. The main findings reveal that 3PL service providers commit to creating efficiencies for the distribution centre through adhering to outbound plans, having service levels agreements in place, meeting the set key performance indicators, maintaining information flow to align goals of both parties, and operating in the most flexible manner to achieve efficient product delivery and enhance customer satisfaction. However, there are challenges that arise due to fluctuations in outbound volumes, communication breakdown, unpunctuality and the limited number of trucks available for use.