Everything You Need to Know About Third-Party Logistics
These days businesses outsource logistics or third-party logistics partners (3PL) to handle all their supply chain activities. A 3PL has its own or rented warehouse and they provide all logistic services such as packing, transportation, etc. to your company. The reason for relying on logistic outsourcing is to focus on their core business, maintain increased sales, and make connections for distribution in other areas.
Types of Third-Party Logistics in Supply Chain Management
A third party logistics can be divided into different types-
● Transportation based services
● Warehousing
● Freight forwarding
● Supply logistics
● Integrated Logistics
- Transport Based Services
Transport-based services are essential for businesses that need to move products from one location to another. These services specialize in various types of transportation, including domestic and international, and use a range of technologies and modes to ensure that items are shipped safely and efficiently.
Outsourcing logistics services to transport providers saves time and resources for businesses, allowing them to focus on other aspects of their operations. With the help of these services, businesses can ensure that their products reach their intended destination on time and in good condition, providing them with a competitive edge in today’s fast-paced marketplace. Whether it’s by air, land, or sea, transport-based services are a vital component of the modern supply chain.
2. Warehousing
Third-party logistics or 3PL outsourcing logistics is a powerful tool for businesses seeking to expand their reach and increase efficiency. In addition to transportation services, many 3PL providers also offer their own warehouses, which enable businesses to reach a wider range of customers in various geographic areas.
These warehouses provide a range of services, including storage, stock rotation, inventory management, fulfillment, and return services, allowing businesses to streamline their operations and provide a seamless customer experience.
By outsourcing logistics to a 3PL provider with their own warehouses, businesses can save time and resources while increasing their ability to meet customer demands in a rapidly changing marketplace.
3. Freight forwarding
Freight forwarding is a widely used form of outsourcing logistics that involves the transportation of goods from one location to another. The freight forwarder oversees the entire process of product transportation from start to finish, working with carriers and logistics providers to ensure that goods are delivered safely, efficiently, and on time. Freight forwarders play a critical role in the global supply chain, providing businesses with the expertise and resources they need to navigate complex transportation networks and reach customers in markets around the world.
4. Supply Logistics
Supply logistics is a specialized form of 3PL outsourcing logistics that involves the outsourcing of a network or branches by businesses. In this type of outsourcing, suppliers are responsible for maintaining the availability of stock for the business, ensuring that products are always in stock and ready for delivery to customers.
This form of logistics outsourcing is particularly useful for businesses that operate in multiple markets and need to manage complex supply chains. By outsourcing supply logistics, businesses can benefit from the expertise and resources of a third-party provider, who can help them streamline their operations, reduce costs, and improve the efficiency of their supply chain.
With supply logistics, businesses can ensure that they always have the products they need to meet customer demand and stay ahead of the competition.
5. Integrated logistics service
Integrated 3PL outsourcing logistics is a specialized service that provides businesses with the resources to manage the entire product life-cycle, from production to consumption. With this type of outsourcing, a company can hire a third-party provider to manage its supply chain management as a whole, allowing them to focus on its core responsibilities.
What is The Process of Outsourcing Logistics?
The following steps are typically involved in the logistics outsourcing process:
Find out your logistic needs
To outsource logistics, businesses must first evaluate their logistics requirements and identify which tasks can be delegated to a third-party logistics (3PL) provider. This process involves assessing the company’s current logistics operations to identify any inefficiencies and determining whether outsourcing can provide advantages. The evaluation of logistics needs is a critical step in deciding which services to outsource and selecting the right 3PL provider. By identifying areas where outsourcing can improve efficiency and reduce costs, companies can make an informed decision about which logistics services to outsource and ensure that the selected 3PL provider meets their needs.
Find out the 3PL service provider
After assessing its logistics requirements, a business can start searching for a third-party logistics (3PL) provider who can fulfill its demands. The process involves evaluating potential suppliers based on their qualifications, experience, reputation, and cost. The business should carefully assess the 3PL provider’s capabilities to ensure it can meet its logistics needs.
It’s essential to consider the 3PL provider’s expertise in the specific areas of logistics the business needs, such as transportation or inventory management. The reputation and experience of the 3PL provider should also be evaluated to ensure reliability and quality of service. By thoroughly evaluating potential 3PL providers, businesses can select the right partner for their logistics needs.
Negotiate with them about the contract
Once a 3PL provider is selected, the business will establish a contract that outlines the scope of services, performance standards, and cost. This contract serves as a legally binding agreement between the two parties and helps to clarify expectations. It is essential to negotiate the terms of the contract carefully and ensure that both parties understand their responsibilities. The contract should also specify key performance metrics that will be used to evaluate the success of the outsourcing arrangement. A well-crafted contract helps to establish a strong foundation for the outsourcing relationship.
Starting with logistics
Once the contract is signed, the 3PL supplier will begin implementing logistics services. This can include setting up inventory management systems, arranging transportation routes, and training workers in new procedures. The implementation phase requires close collaboration between the business and the 3PL supplier to ensure a smooth transition. During this phase, it’s crucial to establish clear communication channels and ensure that all parties are aware of their roles and responsibilities. The success of the outsourcing arrangement depends on the effectiveness of the implementation phase.
Monitor their work
To track performance, spot problems, and make required adjustments, the organization will keep a tight working relationship with the 3PL provider.
Benefits of Outsourcing Third-Party Logistics
There are various benefits of hiring outsourcing logistics for companies as it fills the gap between their company and their supply chain needs. Many more benefits of the 3pl outsourcing logistics are given below-
1. Cost Cutting
Businesses lack an extensive network of supply chains and do not specialize in logistics. Maintaining the supply chain function internally will cost businesses more than hiring a 3PL. The 3pl has a wide network and can easily negotiate prices, offer great discounts, and therefore minimize overall costs.
2. Focus on Core business
Businesses can focus on core responsibilities if they leave the headache of supply chain management to 3pl. Meanwhile, all your product cycle is handled by the logistic experts you can focus on product development, improving customer service, and marketing.
3. Flexibility
When you internally handle the logistics it doesn’t give you the flexibility to reach a wider audience and even when your sales are going down still you have to pay the logistics teams. Another benefit of 3pl is that it offers flexibility to businesses to distribute their services to wider channels at the best rates thus profiting businesses. And when your sales are down, you don’t have to worry about paying for the services which you haven’t opted for.
4. Improved customer satisfaction
You might not be able to deal with last-mile delivery but outsourcing logistics help you reach customer satisfaction by offering last-mile delivery. Also, your businesses may not have enough staff to deal with a wider customer base but 3pl makes it easier to reach customers and provide them with high-quality services.
Drawbacks of Outsourcing Logistics
No control over logistics
Since you won’t be directly dealing with your customers, instead a 3pl will be in touch with customers, hence, you don’t have control over the logistic process. Since the task of transportation, delivery, etc is in the hands of 3pl, any mistake or failure in their party will affect your brand name.
This is where service level agreements and contracts come in to solve such issues at the earliest so that you don’t lose your customers.
Difficulty in Management
Since there are two parties (business and 3pl) who are going to work together, there must be a proper system or integration of some software into theirs to make sure that the flow of information is contacted through the system and that this information can be easily managed or optimized whenever required. Some businesses fail to make this integration and fail to manage the task flow between two parties.
Is Outsourcing logistics a good or bad idea?
Outsourcing logistics will be a good idea if the 3pl meets KPIs such as understanding what you need and you need to communicate with them about your objectives. You need to monitor them and measure their performance time-to-time. You also need to give them feedback regarding services and tips for making improvements so that everything goes well.
Key Performance Indicators or KPIs for 3pl must be-
Vehicle availability- A reliable 3PL must have readily available vehicles to meet your business needs and ensure timely loading and departure. Punctuality is key to maintaining efficient supply chain operations, and the ability to provide dependable transportation is a crucial aspect of 3PL services.
On-time Delivery -It’s essential for a third-party logistics partner to provide delivery reports that allow businesses to track their performance. These reports should include details on delivery times, enabling businesses to measure their efficiency and the effectiveness of their logistics partner. By calculating the percentage of delayed deliveries, businesses can identify any areas for improvement and take appropriate action to optimize their supply chain operations. Accurate delivery reporting is therefore a critical component of successful logistics management.
Admin accuracy- One of the critical performance indicators for 3PLs is their ability to maintain accurate records of invoices and delivery documents, minimizing errors and discrepancies that can impact supply chain efficiency and customer satisfaction.
Conclusion
In conclusion, outsourcing logistics to a third-party provider has become an essential strategy for businesses to stay competitive in today’s fast-paced marketplace. From transportation to warehousing, freight forwarding to supply logistics, and integrated logistics services, there are various options available for businesses to choose from.
By carefully evaluating their logistics needs, selecting the right 3PL provider, negotiating a well-crafted contract, and working closely during the implementation phase, businesses can benefit from increased efficiency, cost savings, and a seamless customer experience. Ultimately, outsourcing logistics can help businesses focus on their core responsibilities, expand their reach, and achieve success in today’s global marketplace.
