Logistics Strategy and Network Design

Introduction

Logistics strategy is the long-term pattern of decisions through which an organisation plans, designs and controls the movement and storage of goods, information and related services. It connects the organisation’s competitive strategy with operational choices such as facility location, inventory positioning, transport mode, capacity, outsourcing and distribution-channel structure.

A logistics network consists of the facilities, transportation links, information systems, inventories and relationships used to move products from suppliers to customers. Network design determines the broad structure of this system: how many facilities are required, where they should be located, what activities each facility should perform, how much capacity is needed and which flows should be internal or outsourced.

These decisions are strategically important because they usually involve substantial capital expenditure, long-term commitments and difficult-to-reverse consequences. A poorly located warehouse can create high transport costs for many years. Excess capacity increases fixed costs, whereas insufficient capacity causes delays, lost sales and emergency transport. Effective logistics strategy therefore balances customer service, total cost, resilience, flexibility, sustainability and risk.

Learning Objectives

By the end of this chapter, a learner should be able to:

1. Explain the relationship between business strategy and logistics strategy.
2. Describe the main components of logistics network design.
3. Evaluate facility location, capacity and centralisation decisions.
4. Compare distribution channels and outsourcing alternatives.
5. Apply basic quantitative tools to logistics decisions.
6. Assess network configuration using cost, service, risk and sustainability criteria.
7. Recommend a logistics network while recognising its limitations and governance requirements.

1. From Business Strategy to Logistics Strategy

Business strategy defines how an organisation intends to create value and compete. Common competitive priorities include low cost, rapid response, product availability, customisation, quality and sustainability. Logistics strategy translates these priorities into operational capabilities.

For example, a low-cost retailer may emphasise consolidated shipments, high inventory turnover, standardised packaging and strategically located regional distribution centres. An emergency medical supplier may accept higher transport and inventory costs in order to provide rapid, reliable availability. An online fashion business may require flexible fulfilment, parcel-carrier integration and returns processing rather than a traditional store-replenishment system.

A useful alignment sequence is:

Business objectives → customer-service promise → logistics capabilities → network configuration → performance measures.

The customer-service promise should be explicit. It may specify delivery time, order completeness, product availability, delivery frequency, visibility, damage tolerance and returns performance. The logistics system should not promise a service level that its facilities, transport capacity and information systems cannot reliably support.

Strategic fit

Strategic fit exists when the logistics network supports the organisation’s market requirements and competitive priorities. Important questions include:

• What customer segments are served?
• How predictable and geographically dispersed is demand?
• Is the product perishable, hazardous, bulky, valuable or customised?
• How quickly must orders be delivered?
• Is demand seasonal or volatile?
• Which activities create distinctive competitive advantage?
• Which risks can the organisation tolerate?

Logistics strategy should also fit the product life cycle. A new product with uncertain demand may require flexible capacity and postponement. A mature, standardised product may benefit from scale economies and centralised inventory. During decline, the organisation may consolidate facilities or use third-party logistics providers to reduce fixed commitments.

2. The Logistics Network as a System

A logistics network normally includes the following nodes and links:

• Supply nodes: suppliers, ports, farms, mines or manufacturing plants.
• Transformation nodes: factories, assembly sites, packaging centres and postponement facilities.
• Storage nodes: central warehouses, regional distribution centres, fulfilment centres and cross-docks.
• Demand nodes: stores, wholesalers, business customers, consumers and service locations.
• Reverse-flow nodes: return centres, repair facilities, recycling points and disposal sites.
• Links: road, rail, air, sea, pipeline, courier and digital information connections.

The network should be analysed as a whole rather than by isolated departments. A decision that reduces warehouse cost may increase transport, inventory or stockout cost. This is the principle of total cost.

A simplified total logistics cost relationship is:

where:

• TC = total logistics cost per planning period;
• C_p = procurement and inbound-processing cost;
• C_t = transportation cost;
• C_w = warehousing and facility cost;
• C_i = inventory holding cost;
• C_o = order-processing and information cost; and
• C_s = shortage, expediting and service-failure cost.

The formula is a managerial cost framework rather than a universal accounting identity. It is useful when cost categories are defined consistently and double counting is avoided. Costs may be fixed, variable, step-fixed or risk-related. The analysis should also consider revenue effects, working capital, taxes, environmental costs and capital employed.

Trade-offs in network design

Network design involves trade-offs rather than a single universally optimal answer.

3. Facility Location Decisions

Facility location determines the geographic position of plants, warehouses, cross-docks, terminals and service centres. A sound location decision considers both quantitative and qualitative factors.

Key location factors

1. Customer proximity: distance, delivery time and market accessibility.
2. Supplier proximity: inbound freight cost, lead time and supply reliability.
3. Transport infrastructure: highways, ports, rail terminals, airports and intermodal connections.
4. Labour: availability, skills, wage rates, productivity and industrial relations.
5. Land and building cost: purchase, rent, construction, maintenance and expansion potential.
6. Utilities and technology: power, water, telecommunications and data connectivity.
7. Regulation and taxation: zoning, customs, environmental rules and incentives.
8. Risk exposure: flooding, earthquakes, political instability, congestion, crime and climate hazards.
9. Sustainability: emissions, energy sources, community effects and ability to use low-carbon transport.
10. Strategic flexibility: options for future growth, automation, product changes and market entry.

A location should be evaluated over the relevant planning horizon. A low purchase price does not necessarily imply a low life-cycle cost if the site has poor access, high labour turnover or frequent disruption.

Centre-of-gravity method

The centre-of-gravity method provides an initial estimate of a facility’s geographic position when transport demand between a proposed facility and demand points is known. For a two-dimensional coordinate system:

Here, x_i and y_i are the coordinates of demand point i, and w_i is its weight, such as annual shipment volume or transport demand. The resulting x^* and y^* identify a calculated centre, not necessarily a feasible site.

The method assumes that coordinates are comparable, weights represent relevant demand, transport cost is approximately proportional to distance, and barriers such as mountains, one-way roads and legal restrictions are initially ignored. The result must therefore be checked against actual road networks, land availability, congestion, risk and service requirements.

Worked example: centre of gravity

A company serves three markets:

Total shipments are 600. Therefore:

x^* = [(100 × 10) + (200 × 40) + (300 × 20)] ÷ 600 = 130 ÷ 3 ≈ 21.67.

y^* = [(100 × 20) + (200 × 30) + (300 × 60)] ÷ 600 = 260 ÷ 3 ≈ 43.33.

The initial location estimate is approximately (21.67, 43.33). This is a screening result. A final decision would require analysis of road distance, land cost, labour, taxes, service time and risk.

Cost-volume analysis

When comparing candidate sites, annual cost can be represented as:

where C_j(Q) is the annual cost at site j, F_j is annual fixed cost, v_j is variable cost per unit and Q is annual volume. This model is appropriate when fixed and variable costs are reasonably stable and one relevant output measure is sufficient. It does not capture service differences, capacity limits, nonlinear transport rates or uncertainty.

If two sites have different cost functions, their break-even volume can be found by equating them:

provided the variable-cost difference is not zero. The resulting volume should be compared with realistic demand and each site’s usable capacity.

4. Capacity Planning

Capacity is the maximum volume or activity level that a facility, process, transport resource or network can support during a specified period under stated conditions. Capacity decisions must distinguish between theoretical, practical and effective capacity.

• Design capacity: maximum output under ideal conditions.
• Practical capacity: achievable output after planned maintenance, breaks and normal constraints.
• Effective capacity: capacity available for the particular product mix and service requirements.
• Utilisation: output divided by design or rated capacity.
• Load factor: used capacity divided by available capacity, commonly applied to transport.

A basic utilisation measure is:

For example, a warehouse designed to process 10,000 order lines per day processes 7,500. Its design-capacity utilisation is 75%. This does not mean that 25% is always safely available; congestion, labour schedules, order profiles and peak patterns may reduce practical capacity.

Capacity planning should examine:

• average demand and peak demand;
• seasonality and promotional events;
• product and order-line characteristics;
• labour availability and shift patterns;
• equipment reliability and maintenance;
• inbound and outbound dock capacity;
• space for growth and contingency;
• supplier and carrier constraints; and
• the cost and lead time of expansion.

A network with no spare capacity may operate efficiently during normal conditions but fail during promotions, strikes, weather events or sudden demand increases. Conversely, excessive spare capacity may impose unnecessary fixed cost. The appropriate level of capacity depends on the cost of failure, demand uncertainty and the value of responsiveness.

5. Centralisation, Decentralisation and Inventory Positioning

Centralisation places inventory or processing in fewer locations. Decentralisation distributes it across several locations closer to customers.

Centralisation can reduce facility duplication, improve managerial control, increase scale economies and pool uncertain demand. Inventory pooling is valuable because independent demand fluctuations may partially offset one another. Centralisation may, however, increase outbound distance, delivery time, exposure to a single disruption and dependence on long-haul transport.

Decentralisation can provide faster delivery, local market responsiveness and lower last-mile distance. Its disadvantages include additional facilities, duplicated safety stock, more complex coordination and potentially lower warehouse productivity.

The decision should consider product characteristics. High-value, slow-moving or highly uncertain items may be centralised, while fast-moving or time-sensitive items may be positioned regionally. A segmented network uses different policies for different products or customers rather than applying one structure to all flows.

Postponement

Postponement delays final configuration, packaging, labelling or localisation until demand is known. For example, a manufacturer may hold generic products centrally and add language-specific labels near the destination market. Postponement reduces the risk of holding the wrong finished product, but it requires compatible product design, reliable information and adequate final-processing capability.

Cross-docking

Cross-docking transfers goods from inbound to outbound vehicles with little or no storage. It can reduce handling and inventory time, but it requires accurate schedules, reliable suppliers, compatible shipment profiles and strong information coordination. It is unsuitable when goods arrive unpredictably or require inspection, storage or value-adding work.

6. Distribution Channels

A distribution channel is the route and set of participants through which products reach customers. Channels may be direct, indirect or hybrid.

• Direct channel: producer sells directly to the final customer, often through a company website, sales force or owned store.
• Indirect channel: intermediaries such as wholesalers, distributors, agents or retailers participate.
• Omnichannel system: customers may use multiple integrated channels, including stores, websites, marketplaces and collection points.
• Reverse channel: products, packaging, repairs and information flow back from customers.

Channel selection should consider customer buying behaviour, order size, geographic dispersion, product complexity, required service, margin structure and control requirements. Direct channels provide customer data and greater control but require the organisation to perform marketing, fulfilment, delivery and returns activities. Indirect channels provide market reach and specialised capabilities but reduce control and may create channel conflict.

An omnichannel model is not simply the addition of online and physical channels. It requires consistent product information, inventory visibility, pricing rules, order orchestration, delivery choices and returns processes. A retailer may fulfil an online order from a store, warehouse or supplier; this can improve responsiveness but may increase operational complexity and inventory inaccuracies.

7. Outsourcing and Third-Party Logistics

Outsourcing transfers selected logistics activities to an external provider. A third-party logistics provider (3PL) may perform transport, warehousing, customs clearance, fulfilment, freight consolidation or returns processing. A fourth-party logistics provider (4PL) generally coordinates multiple providers and may manage broader network integration.

Reasons to outsource

• access to specialist expertise and technology;
• variable capacity without full ownership of assets;
• geographic coverage and carrier buying power;
• faster implementation in a new market;
• conversion of some fixed costs into variable costs; and
• management focus on distinctive capabilities.

Risks of outsourcing

• loss of operational knowledge and direct control;
• dependence on provider financial health and capacity;
• service-quality inconsistency;
• data-security and confidentiality risks;
• hidden transition and governance costs;
• supplier lock-in; and
• difficulty recovering activities after termination.

A make-or-buy decision should compare relevant total costs and strategic consequences. The lowest quoted price is not necessarily the lowest total cost. Evaluation should include implementation, integration, switching, quality, liability, resilience, carbon performance and the cost of managing the relationship.

Contracts should define service-level agreements (SLAs), key performance indicators, reporting frequency, escalation procedures, audit rights, business-continuity obligations, cybersecurity controls, insurance, liability, subcontracting rules and exit arrangements. Important KPIs may include on-time-in-full delivery, order accuracy, damage rate, inventory accuracy, claims cycle time and emissions per shipment.

8. Network Configuration and Decision Process

A practical network-design process includes the following stages:

1. Define scope and objectives. Establish products, markets, planning horizon, service promise and strategic priorities.
2. Collect and validate data. Gather demand, origin-destination flows, facility costs, transport rates, capacities, lead times and constraints.
3. Segment demand and products. Separate customers and products by service requirements, value, volume, volatility and urgency.
4. Develop alternatives. Create feasible combinations of facilities, transport modes, inventory policies and outsourcing arrangements.
5. Model costs and service. Estimate total cost, delivery time, capacity, working capital, risk and emissions.
6. Stress-test alternatives. Examine peaks, disruptions, supplier failures, fuel-price changes, exchange rates and demand scenarios.
7. Evaluate qualitative factors. Consider workforce, regulation, community effects, strategic control and implementation difficulty.
8. Select and implement. Use phased implementation, pilot testing, contractual controls and change management.
9. Monitor and redesign. Review performance because demand, technology, regulations and risk conditions change.

Optimisation software can support facility-location and transportation decisions. A simplified binary facility-location model may use a binary variable y_j, where y_j = 1 if facility j is opened and y_j = 0 otherwise. However, software output is only as reliable as the data, assumptions and objective function supplied. A model that minimises transport cost alone may produce a fragile network with poor service or unacceptable social impacts.

9. Resilience, Sustainability and Governance

Modern network design must address disruption and environmental responsibility, not only normal operating cost.

Resilience is the ability to prepare for, absorb, recover from and adapt to disruption. Resilience measures include multiple suppliers, alternative transport routes, emergency inventory, dual sourcing, flexible contracts, backup information systems and geographically distributed facilities. These measures create cost, so they should be targeted at critical products and failure points.

Sustainability includes environmental, social and economic dimensions. Network decisions affect fuel consumption, greenhouse-gas emissions, congestion, packaging, land use, labour conditions and communities. Organisations should evaluate transport mode, shipment consolidation, facility energy efficiency, renewable power, product design, reverse logistics and fair labour practices.

A commonly used transport-emissions estimate is:

Distance may be measured in kilometres, weight in tonnes and the emission factor in kilograms of CO₂-equivalent per tonne-kilometre. The units then produce kilograms of CO₂-equivalent. The estimate is meaningful only if the emission factor boundary is clear—for example, whether it includes fuel production, empty running, refrigeration and allocation among shipments.

Governance requires clear accountability for decisions, data quality, compliance and ethical conduct. Location decisions should not rely on improper payments or discriminatory assumptions. Outsourcing evaluations should examine labour standards, modern-slavery risks, safety, privacy and environmental compliance. Regulatory obligations may include customs, dangerous-goods transport, product traceability, data protection, competition law and environmental permits.

10. Technology and Contemporary Developments

Digital technologies increasingly influence network design. Transport-management systems support routing, carrier selection and visibility. Warehouse-management systems coordinate inventory, labour and automation. Internet-of-Things sensors can report location, temperature, shock and equipment condition. Digital twins can test network scenarios before physical changes are made.

Artificial intelligence and machine learning may improve demand forecasting, ETA prediction, anomaly detection, route planning and labour scheduling. Their usefulness depends on clean historical data, appropriate human oversight and explainable decision rules. Automated recommendations can reproduce historical bias or fail under unprecedented disruption. Therefore, AI should support—not replace—professional judgement, scenario analysis and accountability.

Contemporary networks also face e-commerce growth, urban congestion, returns expansion, geopolitical uncertainty, nearshoring, supplier diversification, electric vehicles, micro-fulfilment and circular-economy requirements. These trends do not imply one universal solution. Their relevance depends on product economics, customer density, infrastructure and organisational capability.

Applied Case: Northstar Home Appliances (Illustrative)

Background

Northstar Home Appliances sells small kitchen appliances through retailers and an online channel. It currently operates one national warehouse near its manufacturing plant. Online demand has grown rapidly, and customers increasingly expect two-day delivery. The warehouse is 82% utilised on average but reaches 98% during holiday promotions. Delivery to distant regions is expensive, and stockouts occur when promotional demand exceeds forecasts.

Problem

Management is considering three alternatives:

• retain the single national warehouse;
• add a regional fulfilment centre in the east; or
• outsource regional fulfilment to a 3PL while retaining the national warehouse for slower-moving products.

The company must balance delivery speed, fixed cost, inventory duplication, resilience and control.

Analysis

The national warehouse provides scale economies and central inventory pooling, but it creates long outbound distances and a single major point of failure. A company-owned regional centre could improve delivery time and reduce parcel distance, but it would require capital, additional management and duplicated fast-moving inventory. A 3PL would offer quicker implementation and flexible capacity, but Northstar would need strong data integration and contractual safeguards.

The product portfolio should first be segmented. Fast-moving, standardised products with predictable regional demand may be positioned in the regional centre. Slow-moving and high-variety products should remain centralised. Final product configuration and promotional packaging could be postponed until demand is known.

Northstar should compare alternatives using total cost, two-day delivery coverage, order accuracy, stockout frequency, inventory investment, emissions and disruption scenarios. It should model holiday peaks rather than relying only on average demand. A pilot with a 3PL in one region could test service quality and systems integration before a permanent decision.

Approach and likely solution

A hybrid network is recommended for initial implementation: retain the national warehouse for long-tail products and establish a carefully scoped regional fulfilment operation for selected fast-moving items. The regional activity may be outsourced initially, subject to a service-level agreement, data-security requirements, audit rights and an exit plan. Northstar should maintain alternative transport arrangements and review whether selected activities should later be internalised.

Learning points

The case demonstrates that network design is a portfolio decision. Centralisation and decentralisation need not be mutually exclusive. Product segmentation, postponement, scenario analysis and phased implementation can reduce risk. The final choice should reflect customer service and resilience as well as accounting cost.

Challenges and Limitations

Network models simplify reality. Demand forecasts may be wrong; transport rates may change; facility costs may be incomplete; and qualitative effects may be difficult to monetise. Average distance can hide congestion and service-time variation. Historical data may underrepresent rare but severe disruptions. A mathematically optimal solution may be operationally infeasible if labour, permits or supplier cooperation are unavailable.

Managers should therefore use sensitivity analysis, alternative scenarios and expert review. They should document assumptions, distinguish facts from estimates and update models when conditions change. Decisions should also be reversible where possible through modular facilities, flexible contracts, multiple carriers and scalable technology.

Best-Practice Checklist

• Align the network with the organisation’s competitive strategy.
• Define customer-service requirements before selecting facilities.
• Use total landed and life-cycle cost rather than isolated cost categories.
• Segment products and customers by service and demand characteristics.
• Include peak demand, uncertainty and disruption scenarios.
• Validate quantitative results against geography and operational reality.
• Balance efficiency with resilience and flexibility.
• Include emissions, labour and regulatory considerations.
• Establish data governance and clear decision ownership.
• Use pilots, contracts and performance reviews when outsourcing.
• Reassess the network as markets, technology and risk evolve.

Chapter Summary

Logistics strategy aligns the movement and storage of products with business objectives and customer-service requirements. Network design determines the location, number, role and capacity of facilities, as well as the transport, inventory, channel and outsourcing arrangements connecting them. Major decisions involve trade-offs: centralisation can pool inventory and reduce fixed cost, while decentralisation can improve response; outsourcing can provide expertise and flexibility, while increasing dependency and governance requirements.

Facility location can be screened using tools such as the centre-of-gravity method and cost-volume analysis, but quantitative results must be tested against capacity, infrastructure, regulation, risk and sustainability. Effective network design uses total cost, service performance, resilience, environmental impact and strategic control. Product segmentation, postponement, cross-docking and hybrid networks can provide more appropriate solutions than a single structure for all products. Technology and AI support visibility, forecasting and scenario analysis, but require reliable data, human oversight and ethical governance. Network decisions should be phased, stress-tested and reviewed continuously.

Key Terms

Logistics strategy: A long-term plan for configuring and managing logistics capabilities to support business objectives.

Network design: The strategic determination of facility locations, roles, capacities, flows and relationships in a logistics system.

Total logistics cost: The combined cost of transport, facilities, inventory, processing, procurement and service failure.

Facility location: The geographic selection of a plant, warehouse, terminal or service site.

Centre of gravity: A weighted geographic estimate of a facility position based on demand points and shipment weights.

Capacity: The volume or activity level that a resource can support during a specified period.

Utilisation: Actual output expressed as a proportion of rated or design capacity.

Centralisation: Concentrating inventory or activities in relatively few locations.

Decentralisation: Distributing inventory or activities across multiple locations.

Inventory pooling: Combining demand across locations to reduce the effect of independent fluctuations.

Postponement: Delaying final configuration or localisation until demand is more certain.

Cross-docking: Transferring goods between inbound and outbound vehicles with minimal storage.

Distribution channel: The route and participants through which products reach customers.

Omnichannel distribution: Integrated use of multiple customer and fulfilment channels.

Outsourcing: Contracting an external organisation to perform selected activities.

Third-party logistics provider: An external provider that performs logistics services for a client.

Service-level agreement: A contract specifying service requirements, measures and remedies.

Resilience: The ability of a network to withstand, recover from and adapt to disruption.

Postponement: Delaying product differentiation until demand information is available.

Network optimisation: The systematic evaluation of feasible network alternatives against defined objectives and constraints.

Review Questions

Short Answer Questions

1. What is meant by strategic fit between business strategy and logistics strategy?
2. State four factors that should be considered in facility location.
3. Distinguish between design capacity and effective capacity.
4. Give two advantages and two risks of logistics outsourcing.
5. What is postponement, and why can it reduce inventory risk?

Long Answer Questions

1. Explain the major trade-offs between a centralised and a decentralised logistics network.
2. Describe a systematic process for designing a logistics network.
3. Discuss how distribution-channel choice affects logistics activities and customer service.
4. Explain why total logistics cost is more useful than analysing transport or warehousing cost alone.
5. Evaluate the role of resilience and sustainability in contemporary logistics network design.

Analytical / Application Questions

1. A company serves four markets with different shipment volumes and coordinates. Explain how you would use the centre-of-gravity method, and identify at least four practical factors that must be assessed before selecting the final site.
2. A warehouse has a design capacity of 20,000 order lines per day and processes 15,000 order lines. Calculate its design-capacity utilisation and explain why this measure may not reveal peak-period congestion.
3. A retailer is deciding between a company-owned regional warehouse and a 3PL facility. Develop a decision framework including financial, service, risk, sustainability, technology and governance criteria.

Multiple Choice Questions with Answers

Question 1

Which statement best describes logistics strategy?

A. A short-term schedule for assigning warehouse workers

B. A long-term plan aligning logistics capabilities with business objectives

C. A record of historical transport invoices

D. A legal document used only for customs clearance

Correct Answer: B. A long-term plan aligning logistics capabilities with business objectives

Question 2

What is a major advantage of centralising inventory?

A. It always reduces delivery distance

B. It eliminates all disruption risk

C. It can pool demand variability and reduce duplicated stock

D. It guarantees faster delivery to every customer

Correct Answer: C. It can pool demand variability and reduce duplicated stock

Question 3

A warehouse has a design capacity of 20,000 order lines per day and processes 15,000. What is its design-capacity utilisation?

A. 50%

B. 65%

C. 75%

D. 80%

Correct Answer: C. 75%

Question 4

In the centre-of-gravity method, shipment volume is used as the weight because it represents what?

A. A facility’s legal ownership

B. The relative importance of each demand point to the flow calculation

C. The maximum building height at each site

D. The number of employees at each site

Correct Answer: B. The relative importance of each demand point to the flow calculation

Question 5

Which activity is most closely associated with cross-docking?

A. Long-term storage of seasonal inventory

B. Transferring inbound goods to outbound vehicles with minimal storage

C. Manufacturing products from raw materials

D. Disposing of all returned products

Correct Answer: B. Transferring inbound goods to outbound vehicles with minimal storage

Question 6

Which is a potential risk of outsourcing logistics to a 3PL?

A. Access to specialist expertise

B. Flexible capacity

C. Loss of direct control and provider dependency

D. Potentially faster market entry

Correct Answer: C. Loss of direct control and provider dependency

Question 7

What does postponement involve?

A. Delaying final product configuration until demand is clearer

B. Delaying all customer deliveries regardless of priority

C. Increasing finished-goods variety before forecasting demand

D. Removing information systems from the supply chain

Correct Answer: A. Delaying final product configuration until demand is clearer

Question 8

Which item should normally be included in a total logistics cost analysis?

A. Only the warehouse rent

B. Only the outbound freight invoice

C. Transport, facilities, inventory and service-failure costs

D. Only the purchase price of raw materials

Correct Answer: C. Transport, facilities, inventory and service-failure costs

Question 9

Why should a network model be stress-tested?

A. To ensure that average demand is the only scenario considered

B. To examine performance under peaks, disruptions and changing assumptions

C. To eliminate the need for operational judgement

D. To guarantee that the cheapest option is always selected

Correct Answer: B. To examine performance under peaks, disruptions and changing assumptions

Question 10

Which governance provision is especially important in a logistics outsourcing contract?

A. A prohibition on measuring service performance

B. Service-level requirements, audit rights and an exit plan

C. Unlimited permission to subcontract without disclosure

D. A requirement to ignore cybersecurity risks

Correct Answer: B. Service-level requirements, audit rights and an exit plan