Outsourcing Distribution to a Third Party Logistics Provider Relying Upon Cost Savings Criteria
Acta Technica Jaurinensis Series Logistica
Vol. 1, No.2, 2008
Outsourcing Distribution to a Third Party Logistics Provider Relying Upon Cost Savings Criteria
B. Hirkó
Department of Logistics and Forwarding, Széchenyi István University H-9026, Győr, Egyetem tér 1. Hungary e-mail: hirko@sze.hu Abstract: Outsourcing logistics areas is widely regarded for the last decades as a useful approach to reducing costs and gaining competitive advantage. Thus, the strategy of employing third-party logistics (3PL) providers’ services has attracted growing interest. Many studies have been dealt with the advantages and disadvantages of outsourcing warehousing and transportation areas to 3PL providers, however, few of them make an attempt to quantify analytically the potential savings expected by handing over these logistics activities to 3PLs. This paper tries to reveal where the savings could be derived from. It will be demonstrated that savings occur almost evidently involving the 3PL provider into the development of distribution. It will be shown that these savings are a function of the number of the suppliers who outsource their distribution to the (same) 3PL provider and that this number has probably an optimum value.
Keywords: Outsourcing distribution, third party logistics
1. Introduction
Increasing competition and rapid changes in the business world in the last 30 years world have made organizations re-think their strengths and core competencies. They are increasingly focusing on their core business process and outsourcing non-core business processes to outside service providers. Companies can outsource any function from information technology to manufacturing. Outsourcing is „a strategic use of outside parties to perform activities, traditionally handled by internal staff and resources” [6]. Organizations today have the option of outsourcing any activity or function they need. Service providers exist in almost every area of business that can provide the
Vol. 1, No.2, 2008
Outsourcing Distribution to a Third Party Logistics Provider Relying Upon Cost Savings Criteria
B. Hirkó
Department of Logistics and Forwarding, Széchenyi István University H-9026, Győr, Egyetem tér 1. Hungary e-mail: hirko@sze.hu Abstract: Outsourcing logistics areas is widely regarded for the last decades as a useful approach to reducing costs and gaining competitive advantage. Thus, the strategy of employing third-party logistics (3PL) providers’ services has attracted growing interest. Many studies have been dealt with the advantages and disadvantages of outsourcing warehousing and transportation areas to 3PL providers, however, few of them make an attempt to quantify analytically the potential savings expected by handing over these logistics activities to 3PLs. This paper tries to reveal where the savings could be derived from. It will be demonstrated that savings occur almost evidently involving the 3PL provider into the development of distribution. It will be shown that these savings are a function of the number of the suppliers who outsource their distribution to the (same) 3PL provider and that this number has probably an optimum value.
Keywords: Outsourcing distribution, third party logistics
1. Introduction
Increasing competition and rapid changes in the business world in the last 30 years world have made organizations re-think their strengths and core competencies. They are increasingly focusing on their core business process and outsourcing non-core business processes to outside service providers. Companies can outsource any function from information technology to manufacturing. Outsourcing is „a strategic use of outside parties to perform activities, traditionally handled by internal staff and resources” [6]. Organizations today have the option of outsourcing any activity or function they need. Service providers exist in almost every area of business that can provide the