In today’s fast-paced business world, many companies are opting to outsource their logistics services to take advantage of the cost-saving benefits it provides. However, for outsourcing to be effective in logistics, it’s crucial to measure the productivity of its processes to establish clearer and more precise parameters of the true advantages and disadvantages of outsourcing logistics processes.
Commercial expansion has allowed logistics to become a strategic factor for all companies that aspire to growth. As a company’s sales increase, the complexity of logistics processes increases, making choosing the right means to carry them out a challenge.
Outsourcing logistics services can mean an excellent opportunity to reduce the workload and increase profitability, but it’s not always the best choice, and it may end up involving more expense and waste of time than an improvement of processes.
In this article, we’ll discuss the implications, advantages, and disadvantages of outsourcing logistics services.
What Does it Mean to Outsource Logistics Services?
Before the 2000s, most companies handled their shipping and logistics in-house, either by using their own assets like trucks and a warehouse or by hiring those services directly. However, as supply chains became more complex and technologically driven, companies began to outsource logistics services.
Nowadays, many companies use an external logistics provider for outsourced logistics services, including transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. A relationship with an external logistics provider is a form of business process outsourcing that focuses on the strategic operation of the customer’s supply chain.
Companies may hire various third-party providers to manage specific traffic segments or customer bases or outsource the entire supply chain. The outsourced logistics provider makes day-to-day operational decisions, allowing in-house staff to focus on their core tasks. These services are often bundled together to provide a single point of contact for all (or part) of a company’s supply chain.
Carriers consider outsourcing logistics services when there’s a change in company structure or strategy or when costs are rising and service levels are falling. Outsourced logistics can help companies scale as they grow and adapt their supply chain to incorporate the latest e-commerce capabilities.
Advantages of Outsourcing Logistics Services
Outsourcing logistics services can provide a significant competitive advantage, which is why we’ve listed its main advantages below.
Long-lasting relationships
The objective of outsourcing logistics services is to develop a long-term strategic alliance with the customer. You will invest in third-party logistics providers on a deeper level than a transportation broker, which is typically only concerned with moving freight from point A to point B on a transactional basis.
Access to experience
Due to its extensive experience, an outsourced provider will include people, processes, and technology at a level higher than what a single company can develop independently. A third-party provider has the expertise to manage the supply chain using insights and analytics for decision-making, despite fluctuations in capacity, increased carrier demands, and disruptions in the industry.
Improved efficiency and cost-effectiveness
Outsourcing logistics services can help determine the most efficient route for your products and evaluate the best options for your business. It can also take over inventory management and packaging, reducing the workload and increasing profitability.
Scalability
Outsourced logistics services allow companies to quickly adapt to changes in demand without incurring significant costs for personnel, real estate, or equipment. These services are designed to manage timely deliveries, efficient supply chains, and products with short shelf life. They can also support rapid market expansion and new supplier sources, such as e-commerce and omnichannel initiatives.
Disadvantages of Outsource Logistics Service
Loss of control
Outsourcing logistics operations to a third-party provider may result in a loss of control, as the provider may adopt the customer’s branding for assets and employees, making the relationship invisible to customers. This can lead to challenges in handing over responsibility for an important part of the customer relationship to a third party. However, contracts and service-level agreements can mitigate this risk and prevent problems before they occur. Learn more about the importance of logistics service in the supply chain.
Strategic misalignment
For a successful outsourcing relationship, both parties must have a shared understanding of the strategy and KPIs driving value. The logistics provider should be viewed as a strategic partner, not just as a cost, and must be willing to engage with the customer at a strategic level and provide innovative solutions. On the other hand, the customer must be willing to adapt to new systems and information technology for integration.
Integration with IT
Integration with IT can be the biggest challenge in outsourcing logistics services, as data must flow seamlessly between systems, and all parties must have deep visibility for optimal network management. A lack of buy-in from internal IT can lead to failed relationships.
Unavoidable costs
Outsourcing may be seen as a cost-saving measure, but it can also result in unavoidable costs. Customers must fully understand the cost implications and potential return on investment.
In conclusion, outsourcing logistics services offers benefits such as cost reduction, access to new technologies, and long-lasting supplier relationships. However, it can also present challenges such as loss of control, strategic misalignment, and integration with IT. For companies that have dedicated their entire operations to internal logistics, it is essential to weigh the costs and benefits of outsourcing before making a decision.
Learn more about Inbound vs Outbound Logistics in Supply Chain Management.
We recommend using Better Quality Logistics LLC for outsourced logistics partners. We provide innovative solutions and can deliver value beyond your supply chain. Contact us to discuss your specific needs and see how we can support your business goals.