Is Logistics Outsourcing Right for You?
Increasingly intense competition throughout the globe has resulted in more retail and manufacturing companies considering outsourcing their logistics operations instead of the keeping them in-house. Logistics outsourcing through a third-party logistics provider (3PL) is an effective business strategy that enables an enterprise to hand over non-essential functions to a third party, enabling them to focus more on business goals and leverage internal resources.
This business model can also help increase efficiencies in a company’s distribution networks and gain an advantage over competitors.
However, turning to an external source to handle a key component of the supply chain is not always the best answer for every enterprise. There are several pros and cons you should weigh before making such a major decision to outsource your logistics.
PRO:Logistics outsourcing allows you to concentrate on core business functions. When you have a third party handling the shipping and distribution aspects of your supply chain, your own internal operations and efficiencies will get the attention they deserve. Your involvement is limited to sending your orders to the 3PL, and you rely on them to take it from there. You’re typically charged a fee for the services you use, including the space you occupy and freight costs.
CON:You can be hit by unexpected complications, resulting in higher costs. This is especially true of overseas economies with unfamiliar customs, tariffs and other foreign regulations that govern your freight. Still, you can experience unfortunate circumstances in the U.S., especially if your 3PL is acquired by another company. You might find yourself subject to different procedures and higher costs when utilizing a new logistics outsourcing company.
PRO:3PLs have expertise in the logistics industry. These companies are aware of the latest trends and best practices in supply chain management, meaning you have access to the highest levels of expertise and technology. From advanced tracking solutions to simple tools like bar coding, you benefit from their experience in the logistics industry.
CON:You lose direct control over your logistics operations. Your dependence upon your 3PL extends through every step of the logistics process, so it’s important to have confidence in the company’s competence and reliability. Your reputation is at stake, as the 3PL is essentially the face of your shipping operations. Their errors reflect on your business, so carefully vet a logistics outsourcing company before retaining one.
PRO:3PLs can often arrange better transport rates. These companies handle many clients in addition to yours, so they’re constantly organizing shipments that make the most logistical sense. They can often obtain volume discounts from carriers, and pass the savings on to you. Plus, you’re not bearing the cost of less-than-container loads or other inefficiencies that would result if you handled logistics in house.
CON:The cost of using a 3PL for your logistics operations is higher. Despite the savings on transport rates, there are additional fees charged by logistics outsourcing companies. Typically, you’ll be charged an upfront cost based on the complexities of the services they’re providing and infrastructure they might need to develop. There are also fees related to your estimated volumes, which are per unit or per hour for each distribution function. These are separate from the fixed costs which are levied based upon equipment and personnel that are “shared” by all of the 3PL’s clients.