If you are a growing business considering outsourcing your logistics operations to a 3rd party logistics provider (3PL) for the first time, there a few areas that you need to consider beyond simple cost. This article is aimed at providing advice to small and growing businesses, but the advice will hold true for any business considering logistics outsourcing. Read more
Outsourcing logistics operations is an upward trend in the UK, with the UK Logistics sector now seeing revenues of £55bn per year. If you are one of the many companies that are considering outsourcing their logistics operations to a 3rd party logistics provider (3PL), or retendering their existing outsourced operations, here are five key points that you should consider. Read more
Any business development manager within the 3rd party logistics industry will tell you that responding to logistics tenders is part science and part art. The science lies in the solution modelling, and the art is engaging the prospective company in the solution that’s been modelled. Here’s a few tips on the art… Read more
There are undoubtedly some potential risks to consider when a company chooses to outsource its logistics operations to a 3rd party logistics provider (3PL) for the first time.
This short article takes a look at 5 of those potential risks that need to be managed through a comprehensive and carefully considered logistics tender management process.
1. Lack of Control
Lack of control over many aspects of the business is a major concern to many companies who are considering outsourcing logistics functions.
Most important of these concerns is the lack of control over the general management of the department or function that has been outsourced.
This may manifest itself as a loss of direct control over the delivery of the products and can potentially affect the customer experience.
This concern is most prevalent among fast growing SMEs who may have historically ‘bent the rules’ to expedite customer orders outside of standard service levels, giving flexibility that may not be replicated in a 3PL operation.
2. Increased Costs
The increased costs are not immediately obvious, particularly as the overwhelming and obvious need for outsourcing to a 3PL is primarily to save costs.
However, those hidden costs are there, when considered carefully. Companies contracting to a 3PL should be aware of exit costs, delapse charges and redundancy provisions.
It is also necessary to remember that 3PLs are experienced in the negotiation of contracts.
The company considering outsourcing logistics may not have this expertise and therefore will need to pay for legal services to negotiate a contract with the 3PL.
The company will need to ensure it negotiates clear operating principles agreed by both partners as well as an agreed exit strategy on both sides.
Without these agreements in place, the risks to the user company are very significant, potentially impacting heavily on the customer experience.
3. Lowering of Standards
The 3PL will potentially have no experience or understanding of the core business of the company and will be motivated by profit and meeting the terms of the contract at the lowest possible cost.
They may not share the same company culture and ethos as the commissioning company and therefore the company may experience what they consider to be a lowering of standards.
This could translate into a lack of focus on the customer experience.
4. Breaches of Confidentiality
Outsourcing to a 3PL could potentially lead to a breach of confidentiality, resulting in the exposure of customer personal data or the sharing of commercially sensitive information.
If a company were to consider outsourcing functions such as HR or recruitment, there are clearly obvious risks to the security of personal data which must be considered in the negotiated contract.
However, there are also concerns to be considered in the outsourcing of transportation. The 3PL will need to have and maintain detailed records of your company’s customers, locations, order volume, new products and planned growth.
5. Over-reliance on a Single 3PL
Contracting with a single 3PL puts the company at a greater risk when it comes to the financial security of that provider.
Financial loss or bankruptcy of the 3PL leading to the loss of a certain service or function within the company could potentially limit or completely stop production which could be fatal for a company.
This risk can be mitigated by using more than one 3PL and therefore spreading the risk or ensuring contingency planning forms part of the outsourcing strategy.
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All of these risks can be addressed and mitigated through professional logistics tender management.