Outsourcing logistics services puts the day-to-day execution in the hands of trusted logistics experts that frees up a shipper's resources and capital to focus on their competitive advantage and growth. According to a recent Armstrong & Associates report, ninety percent of Fortune 500 companies use third-party logistics providers (3PL) for outsourced logistics and supply chain services, which is a strong endorsement to the value in outsourcing to a logistics service provider (LSP).
While the 90% statistic illustrates 3PLs have gained favorable status, shippers often find it difficult to find internal support on outsourcing their logistics services department and reminds me what my parents would often say when I was younger ... if all your friends jumped off a bridge, would you jump too?
A third-party (3PL) is defined as a company that offers outsourced logistics and supply chain service solutions for shippers. A company can outsource all or just a portion of their logistics requirements.
There are other types or logistics outsourcing models, which are well defined and mapped in the article entitled 3PL, 4PL and 5PL Explained.
For the purpose of this article, we will stick to 3PLs and focus on why it makes sense to jump into the pool by outlining the services and benefits of outsourcing to a third party logistics company.
Focus is the key to success. By outsourcing those service functions that are not core to the customer value proposition, shippers can stay laser focused on the customer by putting all personnel, technology and capital resources on innovations that will provide a competitive advantage to grow the business.
Freight and logistics is more than a rate and a truck. Success in logistics requires in-depth understanding of the freight market, carrier capabilities, technologies, innovations on the horizon, etc. to maximize performance on service and cost.
The best technology requires constant investment, but often takes the backseat to the investment a company needs to make in its core product and people. By outsourcing to an LSP companies tap into the very best people, technology and process in one fell swoop. The TMS systems LSPs operate easily integrate into various business platforms to provide control, visibility and data.
Data is captured through the LSPs TMS at each touchpoint within the logistics cycle of a shipment, which provides the business intelligence required to take transformational steps in the shipper's logistics functions. The data captured cannot be overstated as it is the key to analysis that will produce optimal results and provide the platform for continuous improvement.
Also, outsourcing software is a more cost effective by leaving the development, support and upgrades to the logistics experts versus burning through internal resources, equipment, downtime and constant training needed to take advantages of new functionality.
Third party companies have mastered the subject of back office efficiency out of necessity of survival in their core brokerage divisions. As an example, InTek receives a carrier invoice via an email that is then loaded into its optical character recognition (OCR) software where we do a three-way audit against a carrier's invoice, PO and contract in less than 30 seconds. Immediately following an approved audit, an invoice is created and sent to the customer with their specific required back-up, then the documents are uploaded into TMS for future reference.
Cost savings come from the following areas:
Experience, technology, scale and operational best practices improve the bottom line, while also providing a higher level of service.
As we say here at InTek ... you are only as good as you last shipment ... and recently added the bar continues to rise.
As does a shipper, a logistics service provider focuses all its resources on its core product, which for an LSP is the handling of freight from tender through to final settlement of the carrier invoice. An LSP has the tools to be efficient at gaining access to information that can easily address the problems and provide options to the solutions versus trying to find the data or being told by the recipient of the freight there is an issue which leaves less than zero time for resolution.
There are numerous risks to a supply chain. Regulations, potential for theft (whether physical product or information), damages and huge liabilities if not operating with a legal carrier are just a few of the risk issues. Many of the risks are not even known by many shippers because logistics is not their core competency.
A third-party logistics company has the tools at its fingertips to minimize the risks and in some cases remove the liability altogether by just being the middle person in the transaction. Logistics service providers have the tools to better vet the providers in the carrier approval process and keep track of changes as they occur with the carrier's insurance certificates, agreements, safety ratings and other legal aspects.
Through the outsourced partner, a shipper immediately increases its leverage in a larger logistics network that improves the buy and service a shipper can get on its own. The third-party logistics market understands this concept better than anyone, which is why the M&A activity continues grow within the freight & logistics sector.
Additionally, the larger network also provides an immediate backstop for a shipper that has one of its core carriers fail on a lane. When an outsourced model is put at an arms length distance, it also keeps core carries in the program honest on rates and service levels.
Other leverage points would include: economies of scale; flexibility to ramp up or down within a shipper's business; industry knowledge and technology. All improve the effectiveness and cost of a shipper's logistics functions.
While there is more leverage in being larger versus smaller, there is also a point of diminishing returns on the leverage. In the end, find the cultural fit and understand the leverage the LSP has within its four walls because there are ways for a smaller location to have the leverage of a larger LSP and provide the white glove service found in smaller LSPs.
Most logistics services providers are passionate about their business. As a result, they bring their expertise to the relationship and integrate it quickly to help grow a company quickly.
Overall, companies have a huge opportunity to scale their logistics operations and build upon its competitive advantage by using an LSP.
While the benefits outlined above on logistics service outsourcing sounds fabulous, we understand it is a big step.
Keep in mind a good LSP will take responsibility and be accountable to the company it is serving and will treat the business as their very own, so do a thorough vetting to ensure you find that fit.
If you have any questions regarding the possibility of outsourcing your company’s logistical needs know that we are here to tailor a solution to meet your individual requirements.
For more on InTek Freight and Logistics, please visit our website and blog.