Logistics is the backbone of the supply chain process. It is a key function in many organizations, particularly for companies in the manufacturing and distribution industries. While some firms prefer to build, manage and maintain internal logistics departments, many companies rely on third party service providers. Logistics process outsourcing is the transfer of responsibility for an organization’s logistics activities to an outside expert.
Outsourcing logistics processes makes sense in a market where shippers and traders face increasing cost pressures, changing customer expectations, and the need to keep operational costs down while driving process efficiency and innovation. Many firms simply do not have the resources or capabilities to build a dedicated in-house logistics team and would much rather focus on their strategic activities, such as developing new products and improving their competitive advantage.
Logistics activities represent a significant portion of an organization’s overall budget. This is why supply-chain managers and business owners are always looking to get the most out of their logistics spending. The majority of companies outsource logistics to cut costs, access expertise, and improve the bottom line. Some companies outsource logistics functions because they believe that third party experts can better simplify supply chain management and deliver goods to customers faster and more cost-effectively.
Whatever the reason, the use of outsourced logistics services is rising across industries. Service providers clearly bring value to organizations in the form of cost savings, improved processes and better customer satisfaction.
Outsourcing Logistics Process: The Service Providers
Third party (3PL) logistics providers offer discrete services or end-to-end management of an organization’s entire supply chain, from transport to warehousing to IT infrastructure. Some companies outsource only parts of their logistics functions, for example ACI eManifest processing, while others adopt more comprehensive outsourcing engagements. For importers, exporters, brokers, forwarders and shipping companies, trust is a key factor when choosing a logistics partner. Companies often renew existing contracts with service providers instead of looking for new partners. In general, they prefer logistics partners that have extensive industry experience and those that provide added value over time.