Outsourcing Transportation Logistics Services And Third Party Logistics: A Lot To Consider
At what point does it make sense for a company to outsource its transportation logistics services? Many factors come into play when making this decision and each company's business model may dictate a different answer. While scouring the web on this topic, the term that kept coming up was "core competency". In essence, this term means that transportation management is part of what your company does, and you do it well. If this is the case, then you might be well served to keep it in house. However, if transportation management is something that you only do because you have to support your core business, then you might be better off turning it over to an expert.
Depending on the size and scope of your business, and the service provider that you choose, a third party logistics (3PL) provider can do anything from coordinating the odd truck shipment to managing your whole supply chain. Aside from "core competency", here are some other issues to consider:
If you are a small or mid-size company, you may not generate enough traffic to warrant a deep discount with a carrier. You also may not have the operational expertise to post your shipment on the web to find a carrier that has capacity and is looking for freight. Further, outsourcing supply chain functions like transportation and warehousing can move your costing model from fixed to variable. In other words - you only pay for what you use.
If you are not large enough to have an in-house logistics department or a Traffic Manager, it's pretty nice to make a phone call or send an email and let your 3PL do all the legwork for you. You pay for this convenience but again, if you don't move enough freight to drive a deep discount directly with a carrier, outsourcing with a 3PL will cost the same.
There's no denying that there can be some loss of control with turning your supply chain management over to a 3PL. Much of this loss of control is more perception than reality, and the reality is that a good 3PL will be able maintain tighter control than you could.
Many of the large 3PL providers provide cutting edge technology, online tracing, inventory control, warehouse management and other information systems. Many of these systems could be cost prohibitive for the average company to implement but by using a 3PL, you can take advantage of their investment.
Trust And Exposure
There is a strong likelihood that you will be entrusting your 3PL with sensitive or proprietary company information and a list of your suppliers and/or customers. Most 3PL's are above reproach but when selecting one, you owe it to yourself to ask questions and make sure you are comfortable with the service provider you select.
The bottom line is that there is no easy answer to this question. If you have the know how, technology, manpower and other resources necessary to manage your own transportation logistics, then keeping it in house might be right for you. If not, a 3PL can be the most important link in your supply chain.