7 drivers for outsourcing logistics to third-party providers
A growing number of companies are outsourcing their logistics functions to a third-party logistics company. While this means relinquishing some degree of control over critical aspects of the supply chain, it on the other hand unlocks a large number of benefits, according to a new report from The Supply Chain Consulting Group.
A third-party logistics (3PL) company is a service provider that takes over a portion or all the supply chain management functions. This can include any or all the activities from inbound transport, through storage and inventory management to customer deliveries and returns processing.
What parts of the value chain are outsourced to a 3PL depends on the requirements of the business. At the same time, the nature of outsourcing arrangements can vary from long-term partnerships in which the 3PL collaborates closely with the company to occasional transactional relationships to cover a short-term need.
Why do companies outsource their logistics?
In its latest whitepaper on the 3PL market, researchers from The Supply Chain Consulting Group outline what they believe are seven key drivers for logistics outsourcing. The insights are based on the firm’s extensive track record in the space – The Supply Chain Consulting Group has completed over 700 projects in 50+ countries since its inception (and bagged multiple awards for its work).
1) Gain certainty of the costs and potentially save costs
3PL providers leverage their expertise, resources, and network to optimise supply chain operations, leading to efficiencies that reduce their clients’ transportation, warehousing, and inventory costs. Companies outsource to 3PLs to avoid large capital expenditures and/or long lease commitments.
2) Use the expertise and infrastructure of 3PLs
A 3PL can provide access to a network of transportation and distribution facilities around the world. 3PL providers often have established relationships with carriers, customs brokers, and other logistics partners in different regions, facilitating smooth and efficient international trade.
3) Gain scalability and flexibility
Deal with seasonality, rapid growth, and so on, without overcommitting to fixed space or more resources. 3PL providers offer scalability and flexibility to adapt to changing business needs and market conditions. A 3PL can adjust resources and services accordingly, providing the necessary infrastructure and expertise without significant capital investment.
4) Access technology solutions
3PL providers bring specialised knowledge, experience, and software allowing companies to benefit from state-of-the-art logistics solutions. This includes access to advanced transportation management systems (TMS), warehouse management systems (WMS), and supply chain analytics tools that can improve visibility, efficiency, and decision-making.
5) Mitigate risks
Outsourcing logistics functions to a 3PL can help mitigate the risks associated with supply chain disruptions, regulatory compliance, and market fluctuations. 3PL providers can offer contingency planning, disaster recovery solutions, and compliance expertise to help companies navigate uncertainties and minimise potential disruptions to their operations.
6) Benefit from shared-user synergies
Companies with similar warehousing requirements can share space, systems, management costs, and so on. For example, multiple 3PL clients delivering to the same delivery point on the same day can share vehicles and drivers.
7) Benefit from 3PL expertise and systems where logistics is not a core competence
By outsourcing logistics activities to a 3PL, companies can focus their resources and concentrate on activities that directly contribute to their competitive advantage and growth.
