The benefits of outsourcing logistics processes to a third-party logistics provider (3PL) are well documented. As the world’s economy has become increasingly complex, it has become impossible for a single entity to control all of the warehousing, transportation and administrative tasks that come with shipping and managing inventory. For this reason, more companies are turning to 3PLs to help with cost reductions and overall management of supply chain processes. However, organizations must be careful to ensure they do not overstep their bounds before, during and after selecting a 3PL.
For example, a complete legacy warehouse management system may need to be significantly updated in terms of technology and physical space before integrating with a newer, more comprehensive system. Ultimately, the decision to outsource should not be taken lightly, and company executives need to understand a few facts before outsourcing and a few considerations when selecting a provider. This is the only way to make sure outsourcing benefits a company.
Basic Facts to Understand Before Outsourcing Logistics.
Know What Services You Need to Outsource.
Many 3PLs have extensive offerings, and you need to know what services will and will not improve your existing operation. In other words, you must understand what needs to be improved before considering outsourcing. Create a list of services you offer, and define what services you would like to have. This may include the following:
- Better inventory management.
- Auditing services.
- Small package processing and shipping.
- Tracking of packages via the Internet of Things (IoT).
- Advanced order and payment processing.
- Defined roles of Importer and Exporter of Record.
- Preventative maintenance initiatives.
- Holistic transportation management system (TMS).
Omni-Channel Globalization of the Supply Chain Requires More Contacts and Options.
Small to medium businesses routinely operate in local or regional spaces, but as the world grows more interconnected, you need to look beyond your optimal service area. This helps you grow your business, and a 3PL can provide you access to resources that you may have never even considered as needing improvement, explains industry expert, Frank Castiglia. Essentially, a 3PL expands your access to other service providers, and the third-party nature of operations helps all partnered businesses gain a competitive advantage and other benefits.
Don’t Expect More Than Reasonable.
The third core concept involves how a 3PL can reasonably improve your operations. This seems redundant, but many companies fail to realize the limitations of a 3PL. 3PLs have limits, and while some may be able to provide access to fast-track programs for customs processing, there will still be some delays. The key to truly taking advantage of a 3PL is knowing what is and is not reasonable, and if you can make this distinction, you can be ready to start the process of looking for and selecting a 3PL to outsource logistics.
Critical Things to Know When Considering Outsourcing Logistics.
Once you’ve made the decision to outsource, it can feel like a turn-key operation. However, your input is still greatly needed and helpful, and you should look to a 3PL as a new employee, not just a service provider. As a result, you need to consider four aspects of 3PL practices before making a final selection.
3PLs Aren’t Designed for Short-Term Benefits.
The best 3PLs in the world cannot help a financially bankrupt or consumer-ousted organization. As explained by Leslie Hansen Harps of Inbound Logistics, there is no guarantee that outsourcing will be successful, but you will never know if you only stick to outsourcing for short-term gains. Your company needs to understand the benefits of a 3PL are seen in long-term execution. You may not save money in the first few weeks, or even months, but the savings will start to roll in when your inefficiencies have been addressed and your opportunities have been widened.
3PLs Focus on Long-Term, Mutually Beneficial Business Strategy.
Although it may appear holistic and thorough, outsourcing is not a business strategy. It only makes up a portion of your business strategy, and you need to define your own business strategy to be successful. The key to making this work is aligning your business strategy with the long-term strategy of your 3PL. Moreover, you should look for a 3PL that has similar values and strengths that you listed as services you want to offer.
There Are Many Different Types of 3PL Services.
The hundreds, if not thousands, of logistics outsourcing providers. They come in all shapes and sizes, and you must not be willing to ignore any of them. You need to give all 3PLs an equal opportunity to work with your company. This does not mean you have to sign contracts with each, but you do need to pay attention to what services each provider may offer. Look at the whole picture, and select a 3PL that goes just beyond what you actually need. In addition, make sure your partnered 3PL offers one-stop solutions. In other words, you should be able to complete all of your outsourcing requirements with one company that can connect you to other partners if needed.
3PLs Are Ineffective Without Collaboration.
Outsourcing can take much of your burden of work off your shoulders. But, this is not an excuse to stop working for your organization. The 3PL may be effective at managing processes and identifying ways to save, but you have the most power to leverage. You can define what is and is not working for your employees’ sense of direction and ability. For example, a 3PL can provide you with plenty of metrics, but if your employees hate a specific process, you need to let the provider know what is happening. Ultimately, you become a more important part of the supply chain’s chain of command by acting as the bridge between your company and the 3PL. As a result, you must collaborate on both sides of the bridge to ensure all parties gain a positive return on investment for the creation of the business relationship.
Outsourcing logistics is a great opportunity for your company, and it can provide you with a way to grow your business beyond your expectations. However, not all businesses are ready for the expansion and capability granted by outsourcing. Fortunately, you can help prepare your business for outsourcing by understanding where you stand now and how to be realistic in your expectations when outsourcing logistics. Outsourcing logistics makes sense for many businesses, but it would not make sense if your business is incapable of considering what is and is not likely to occur.