Identification of Key Risk Factors for Logistics Outsourcing - A Case of Retailing Industry in Taiwan

• Ming-Chih Tsai
• Shu-Chun Hung
• Chia-Shing Han

Logistics outsourcing has become a broad business solution for competitiveness. The benefits of being associated with third party logistics include reduced logistics investment, improved logistics performance and enhanced core competences of business. However, logistics outsourcing might also lead to some unwanted events and impacts, namely outsourcing risk, which has been increasingly concerned by the commissioners in their outsourcing decision. The risk issue has not been well addressed in previous studies and empirical evidences were few seen. Therefore, this study aims to construct a risk analysis model for logistics outsourcing, based on qualitative risk assessment. As with generic risk definition, the risk model consists of two important elements, including the occurrence of unwanted events (failures) when outsourcing and the corresponding business losses. In the analytical model developed, three outsourcing failures are identified including contract-related, organizational and market-driven events. 27 Taiwanese retailing chains were chosen as case study for analysis. Principle risk factors associated with varied outsourced activities were calibrated by analytical network process (ANP). The analysis results indicate that the probability of contract-related failures (e.g. poor implementation, delay of time) is far higher than that of organizational assets and market competition events, and the impact of contracted-related events is far higher than the other two failures as well. In combination of these two risk elements, contract-related events lead to 76.4% of the total outsourcing risk, whereas the remaining two events account for 20.2% and 3.4%, respectively. The risk analysis information can be used to justify outsourcing decision and mitigate the ongoing outsourced activity.

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