Yesterday I wrote plainly about the difference between asset based and non-asset based 3PL companies. Simply put, the difference between the two is that asset based 3PL own parts of the supply chain such as trucks, warehouses, and more. A non asset 3PL does not own any of these, and is typically agnostic in the way of warehousing and transportation providers. Today I will discuss the advantages and disadvantages of each. Typically, the advantage of one is a disadvantage of the other’s. The argument on which is better is always debated, and you typically fall into one or the other camp depending on where you work. However, if you are a company who is looking to outsource your logistics to a provider, regardless of asset or non-asset, your best chance at providing the most value for your company is to choose the one that meets your needs, offers solutions, expert and reliable customer service, and ultimately choose the provider that will serve you in the long-term with the ability to scale as you grow and expand your business.
Advantages & Disadvantages of Asset Based 3PL vs Non asset Based 3PL
DISCLAIMER: Cerasis is a non asset based 3PL. However, our goal is to provide the most objective information so you choose a logistics provider who best serves your need. Use the following information to think about your needs and interview several providers from both camps in order to make the best decision for your company.
Below you will find some of the advantages and disadvantages of both asset based and non asset based 3PLs.
Hard Costs of Procurement
Since they own some or all of the physical assets necessary to handle supply chain management, you can hire an asset based company to completely take care of your supply chain. Because of this ownership, asset based logistics providers sometimes offer a lower cost on warehousing and transportation as they set their own pricing and are not paying a third party, such as a carrier or warehouse.
If the non asset based 3PL is not savvy, doesn’t have a large trusted network, or simply doesn’t have the buying power, when it comes to procurement of parts of logistics such as warehousing and transportation, they may not be able to provide cost effective solutions.
Customization and Flexibility
When it comes to a custom solution for your supply chain needs, an asset based 3PL will have difficulty if they own their own warehouses or trucks. There is potential that an asset based logistics provider will simply create your logistics strategy to fit into their complete system.
Hiring a non asset based 3PL provider ultimately means hiring expertise, not hardware. By analyzing individual supply chain needs, a non-asset based 3PL can evaluate how a company’s supply chain is working and how it can be improved. Non asset based 3PLs can work with companies to identify the best approach to meet the demands of their industry and customers. By designing a supply chain that fits a company’s specific needs, non-asset based 3PLs can apply their flexibility that allows them to respond to clients’ needs on a case-by-case basis.
Further, many companies have made heavy investments in their own supply chain infrastructure. By using a non-asset based logistics provider, companies can continue to realize value from these capital investments while providing the most efficient means of delivering service.
Stability and Financial Solvency
Some view asset based third party logistics providers, in general, as more stable than the non asset based logistics providers. Some say this, stating asset based 3PLs represent stability because they have invested in the long-term operation of their company. Furthermore, some say owning real estate, such as a warehouse, decreases the fear of relying on other’s leases terminating thus leaving the customer out to dry.
This perception may be due to stories of some non-asset providers having the ability to easily close up shop, leaving bills unpaid, and customers hanging, because the barrier to entry in with no purchases of expensive assets needed more than a phone, internet connection, and current bond investments of only $10,000. In response, the Federal Motor Carrier Safety Administration, with the passing of Map-21, now requires a bond of $75,000 freight broker surety bond, with the hopes of decreasing fraud in the freight broker and non asset based 3PL worlds.
Conflicts of Interest
A non asset based 3PL is free from vested interests that can sometimes influence an asset based 3PL. For example, when it comes to freight claims management, a non-asset 3PL can also avoid any bias when acting to protect you in case of a claim for damages as it is in the best interest of the non asset 3PL to get the highest payment for your claim, offering clear and open communication.
Furthermore, when it comes to freight invoices, it’s to the advantage for a non asset 3PL as they are going to work on your behalf to uncover unexpected variances between your quote and invoice.
Conversely, since non asset based logistics providers outsource responsibilities to other companies, there are more hands involved in storing and moving goods. With less control over the logistics by one company, there may be more opportunities for errors.
Asset based 3PLs need to make it clear to new customers, especially those who’ve never outsourced their supply chain, that they will be able (and willing) to allow the customer to see into the 3PLs infrastructure at any time. This is important because the company must trust its 3PL and because it is ultimately the company, not the 3PL, that will lose customers if deliveries are not made correctly and on time.
As stated above, make sure you take serious consideration and vet out any logistics provider you are looking to hire. Regardless of which camp you choose, asset based 3PL or non asset based 3PL, you will realize many benefits to outsourcing your logistics and supply chain needs. Typically, when outsourcing logistics, it allows you to stay focused on your core competency, realize both hard and soft cost savings, and scale as you grow your business.
What advantages or disadvantages did we miss and you woul add? Leave your thoughts in the comments section below.