Logistics Outsourcing

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Principles and Advantages of Logistics Outsourcing

In the face of increasingly intensified competition in the emerging globaleconomy, manufacturing and retail firms are progressively turning to outsourcing of their logistics functions. Outsourcing is a viable business strategy because turning non-core functions over to external suppliers enables companies to leverage their resources, spread risks and concentrate on issues critical to survival and future growth. One way of extending the logistics organization beyond the boundaries of the company is through the use of a third party supplier, or contract logistics services. One of the most important reasons why companies outsource their logistics functions is the need to decrease the number of warehouses, vehicles and excess inventories and to reduce shrinkage, and labor costs. Such moves bring down fixed and working capital investment., Companies can therefore focus on their core business activities and share the risks. Most firms direction considerable attention to working more closely with their channel partners, including customers and suppliers, and with various types of logistics suppliers. This has resulted in the development of meaningful relationships among the companies involved in the overall supply chain activity.

Third Party Logistics (3PL)
A third-party logistics (3PL) firm is an external supplier that performs all or part of the company’s logistics functions. The definition encompasses providers of services such as transportation, warehousing, distribution, financial services and so on. The use of third party logistics providers has grown dramatically over the last several years and has increasingly become an effective way to reduce costsand spread risks for traditional, vertically integrated firms. The economic advantages of using 3PL suppliers are:

* Elimination of infrastructure investments
* Access to world-class processes, products, services or technologies * Improved ability to react quickly to changes in business environments * Risk sharing
* Better cash-flow
* Reduction of operating costs
* Exchange of fixed costs with variable costs
* Access to resources not available in one’s own organization As customers grow accustomed to using the services of a 3-PL provider for certain activities such as transportation and warehousing, they become better candidates for a broader range of service offerings, or value-added services. Examples of value-added services provided by 3PL providers are: * Pick and pack

* Marking, tagging, and labeling
* Product returns and reverse distribution
* Packaging and repackaging
* Salvage and scrap disposal
* Telemarketing
3PL is an extension of trucking, warehousing, and distribution. It is the provision of these products under one roof, with the aim of taking over some of the associated functions such as stock keeping and documentation. 3PL services also include basic functions comprising physical activities such as transportation, warehousing, line haul and the rental of material handling equipment. However, the task of providing a full outsource solution comprising different services from one service provider is difficult. It is, therefore, not surprising that opportunities are created for 4PL service providers to assist companies in coordinating all the different 3PL activities, which are provided by different service providers. 4PL Service Providers

4PLs represent the next stage of development in logistics service providers. Consequently, while the traditional activities of warehousing, inventory management and transportation may be given out to one 3PL, other processes like HRD, security and product development are done by other 3PLs. In effect, the activities done by a set of internal departments are now being carried out by a set of 3PLs. As a result the companies now have to deal with a whole set of 3PLs and each needs to be coordinated with and linked via...
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