This brief article takes a broad overview of 5 potential gains of outsourcing a company’s operations and services to third party logistics providers (3PLs), from both a strategic and operational view point.
1. Reduction of capital outlay and operating costs
Expensive errors can be made when investing capital in vehicles, warehousing, personnel and technology. Relying on the expertise of 3PLs can avoid this and can provide the opportunity for a company to expand its international logistics channels without taking on any additional costs.
Outsourcing logistics activities can also reduce the daily running costs; the most significant impact being the removal of transport operation costs and the reduction in staffing levels and associated costs. Reduction in operating costs, including the reduction in staffing levels, is clearly the most significant gain to be made by outsourcing to a 3PL.
2. Access to additional skills
In addition, 3PLs can provide the additional skilled staff to introduce the supply chain processes required to grow the company internationally. In-house managers may have only worked in national supply chains. Further, as the use of tools and technology grows particularly within the context of operational logistics, so the requirement for managers with a higher level skills set becomes apparent.
3. Increased service to customers – developing evolving markets
Not only does outsourcing potentially enhance customer service by allowing the company to focus their attention on their core business, but also provides opportunities for developing evolving markets. A company seeking to launch new products in new geographical areas is more able to do so with the increased flexibility that the 3PL brings. When introducing new products to a new area the sales are not guaranteed and the initial profit may be low. The 3PL allows the company to develop into evolving markets more economically, without the need for the introduction of their own assets and logistics network.
4. Relocation needs
Should the need for relocation arise, through the analysis of shifting demand and supply points, outsourcing can provide implementation of the necessary shift away from depots no longer serving their purpose, without the expense of the company purchasing additional depots. An analysis of demand and supply points may have shown that some depots need to be closed and some opened. Outsourcing can reduce the likely costs as well as reducing the potential disruption to customer service levels and operations while the necessary changes take place.
5. Reduction of risk
Technology, legislation and other activities are significantly affected by a fast pace of change. A company that invests heavily in logistics IT for example is putting themselves at risk that the technology will very shortly become obsolete. It is possible, however, for a 3PL or service provider to spread some of the risk of this investment across all its clients.