According to Capgemini’s 2014 study, 72% of shippers are increasing their outsourced logistic services this year and 78% of third-party logistics providers (3PLs) have declared an increase in outsourcing among their shippers. What are the main advantages of outsourcing and why does this trend continue to grow among all types and sizes of shippers? Let’s take a look at the central reasons for hiring a 3PL and the various levels of outsourcing that a shipper should consider.
Outsourcing to a 3PL provides a competitive advantage for most companies. Typical benefits include greater flexibility, operational efficiency and better customer service. Most companies outsource to:
1) Acquire experts, knowledge and resources that are not available internally
2) Let company management focus on core competencies
3) Cut costs and enhance operations
Outsourced logistic activities can be divided into two main categories; execution activities and activities of planning and control.
Execution ActivitiesLevel 1. Warehousing and Transportation. This level is based on transactions and implies no long-term contracts between 3PL and shipper.Level 2. Value-Added Activities. Includes distribution as a part of final processing, packaging and labeling. Outsourcing on a long term basis with negotiated 1-year or less contract.Activities of Planning and ControlLevel 3. Management of Inventory and Transport. Consists of scheduling and route planning, event control, stock control, sales forecast, inventory visibility, backorder capability and fulfillment, order-entry management etc. Third party provider offers customized solutions for customer.Level 4. Distribution Network Management Outsourcing. On this level, the 3PL becomes a partner in supply chain management. They restructure and make changes in the client’s whole supply chain. This means strategic outsourcing based on long-term relationship.
Most third party logistics providers can cover several levels of outsourcing, but for shippers with regular shipments and supply chain management focus, 3PLs with strategic levels of outsourcing will be the best choice. However, it is important to understand that common and routine activities from Level 1 and 2 are obligatory for a 3PL to deliver a customized and efficient solution. Capgemini research shows that this year’s most frequently outsourced logistics activities were transactional, operational and repetitive activities, including international transportation, warehousing and freight forwarding. Shippers often underestimate the strategic possibilities of 3PLs, especially when it comes to analytic and IT services.
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