Meaning, Objectives, Advantages of Logistics Outsourcing

The rise of on-demand delivery has forced modern-day businesses to rethink their traditional logistic operation models. Outsourcing the entire function to a trustworthy 3PL partner has become a viable option since it reduces the complexity of achieving deliveries until the last mile.

Logistic outsourcing is a brilliant way to free up resources and also achieve cost efficiency. The benefits have lured even enterprise behemoths like HP, Procter & Gamble, Apple and others into entrusting their logistic operations to 3PL experts.

The benefits of logistics outsourcing come in several forms savings in operating costs, savings in human capital, streamlined operations, no lock-in of working capital and well-connected global delivery endpoints to name a few. Let’s take a closer look at some of the additional advantages:

1. Reduces burden of back-office management

On the surface, the logistic function appears to be simple: sending physical packages from point A to point B. However, before each consignment is sent out on transit, there is paperwork, auditing and verification to be conducted and documented.

3PL outsourcing service providers will have the necessary backend personnel and systems in place to take care of these procedures. From assigning a dispatch note and carrying out physical verification, to ensuring that all shipping papers are in order, logistics outsourcing can take care of the routine activities, sparing time for the business to focus on other priorities.

2. Economies of scale

3PL players usually have a globally distributed network of carriers and fleets which allow them to reach any destination with ease. Since the function is outsourced, it is easy to scale up or scale down the logistic reach of the business without having to set up owned infrastructure and personnel.

3. Real-time visibility of inventory

Professional logistic outsourcing service providers use ERP systems or cloud-based Warehouse Management Systems to help track inventory on a real-time basis. This data can also be received from the service provider on a regular basis for supply chain management planning.

4. Expert documentation handling

Logistics, especially cross-border logistics, requires adherence to sophisticated paperwork. For a business that has logistics only as a small function or department, this can be a tedious job to do on a routine basis. Logistics outsourcing service providers have the domain expertise and knowledge to take care of all kinds of paperwork involved like inter-connected carrier contracts, insurance certificates, bill of lading, certificate of origin, etc.

Disadvantages of Logistic Outsourcing

While logistic outsourcing delivers high on economic benefits, it also riddled with pitfalls that businesses must safeguard against.

1. Outsourcing without proper appraisal process

A good logistics partner is hard to find. The appraisal process itself will include gathering quotes and doing quality reports to check if the provider meets benchmark standards and so on. Rushing through the tender process without adhering to a well-thought process will lead to hassles in the future.

2. Choosing a low-pricing vendor for cost-benefit

An after effect of rushing through the logistic outsourcing vendor process is that you end up signing the deal with someone who offers the lowest rates. As Sun Tzu, the legendary military leader once said, “The line between disorder and order lies in logistics.”

Outsourcing the function to a low-priced vendor who cuts corners might actually create chaos rather than an orderly logistics function. There is a reason why top-notch 3PL players charge a premium rate. It costs a lot to have personnel and processes in place to ensure perfect paperwork, timely coordination of carriers, warehouse management and much more.

3. Not specifying roles and responsibilities in writing

Logistics is a subset of supply chain management which by itself is a combination of several micro-steps. This increases the complexity in logistics planning and implementation.

Unless the roles, responsibilities and tasks of each party take the form of an explicitly written a Service Level Agreement (SLA), there could be serious complications when the process kicks into action.

4. Not viewing logistics outsourcing as a strategy

Logistics plays a key role in the overall strategy of an organization. Moreover, the business environment and customer demands are not what they used to be a few years ago. E-commerce, mobility, on-demand services and other advancements, have reformed the commerce landscape.

If you are outsourcing logistics merely as a function to be done with, and not as a strategic element, then the business is not going to gain much despite the economy of scale.

5. Disconnect between clients & outsourcing agents

Does your logistic outsourcing agent really know what you are trying to do? Is it last mile delivery that your focus is on or faster delivery than the competition? A lack of consensus between the parties can lead to a waste of resources and also lead to cost overruns and delayed deliveries.