Outsourced Logistics: Is It the Right Move for Your Business?

Outsourcing logistics might sound like a big decision, but for many businesses, it’s a smart move. Outsourced logistics means hiring a third-party provider to handle your supply chain activities.

With third-party logistics, complex functions like warehousing and transportation may be outsourced to other entities.

In this guide, we’ll cover what outsourced logistics is, why businesses are doing it, and when it makes sense.

1. What Is Outsourced Logistics?

Outsourced logistics, or third-party logistics (3PL), involves hiring another company to manage your supply chain operations. This could mean transporting goods, warehousing, or managing returns. For example, a company might hire a 3PL to handle all its transportation needs, from shipping raw materials to delivering finished products to customers.

The goal? To let the experts manage the logistics while you focus on what you do best: running your business.

2. Why Would an Organization Outsource Its Logistics?

Companies outsource logistics for several reasons. The main reason? Cost reduction. Outsourcing can help companies cut expenses on labor, technology, and storage. It also frees up resources that can be better used elsewhere.

Another reason is expertise. 3PL providers are specialists in logistics. They know the ins and outs of transportation, warehousing, and distribution. This expertise often translates into better service and efficiency.

Companies also gain flexibility. Outsourcing allows them to scale operations up or down based on demand. This is especially helpful in peak seasons or when entering new markets.

3. What Is the Most Frequently Outsourced Logistics Function?

Transportation management is the most frequently outsourced logistics function. Why? It’s complex, expensive, and time-consuming. By outsourcing, companies can use a 3PL’s network of carriers to find the most cost-effective shipping options.

Warehousing is another commonly outsourced function. Many businesses lack the space or resources to store inventory efficiently. Outsourcing warehousing allows them to manage inventory without worrying about the costs of maintaining a facility.

4. What Do 3PLs Offer?

3PLs offer a comprehensive suite of services to optimize your supply chain, from transportation and warehousing to inventory management and value-added services like packaging and quality control. They provide expertise, scalability, cost savings, and flexibility, allowing you to focus on your core business while they handle the logistics.

Choose a 3PL that aligns with your needs and watch your supply chain soar.

5. Benefits of Outsourcing Logistics

There are many benefits to outsourcing logistics. Here are the top ones:

• Cost Reduction: By outsourcing, you avoid the high costs of owning trucks, hiring staff, and maintaining warehouses.
• Access to the Latest Technology: 3PLs invest in the latest logistics software and tech. This means you benefit from advanced tracking, real-time data, and better service.
• Streamlined Operations: With logistics handled by experts, your operations become smoother and more efficient.
• Improved Service Levels: Faster shipping and reliable delivery mean happier customers.

6. Challenges and Issues in Outsourcing Logistics

Outsourcing isn’t without its challenges. Here are a few:

• Strategic Alignment: The 3PL’s goals must align with your business objectives. Otherwise, you may face conflicts.
• Lack of Flexibility: Outsourcing can limit how quickly you can change your logistics strategy.
• Software Compatibility: Your systems and the 3PL’s tech might not always integrate seamlessly.

Other common issues include loss of control over logistics and communication challenges. To avoid these, it’s crucial to choose a partner who understands your needs.

7. When to Consider Outsourcing Your Logistics Operations

Think about outsourcing your logistics when your business is growing fast, and your in-house team can’t keep up. It’s also a smart move if you want to enter new markets without investing heavily in infrastructure. If your logistics costs are eating up your budget or you’re struggling with inefficiency, outsourcing might be the solution you need.

The key is to identify the right time to outsource. Look for signs like increasing transportation costs, lack of internal expertise, or frequent delivery delays. When these challenges start to impact your customer satisfaction and overall performance, it’s time to explore outsourcing.

8. Which Types of Logistics Activities Are Most Commonly Outsourced?

Many businesses rely on third-party providers to handle various logistics tasks. The most frequently outsourced functions include:

• Freight Coordination: Overseeing the scheduling, transport, and tracking of goods.
• Order Processing: Managing the preparation and shipment of customer orders.
• Stock Management: Ensuring accurate inventory counts and maintaining the right levels of products.
• Returns Handling: Managing product returns, exchanges, recycling, and waste disposal.

Outsourcing these logistics functions allows companies to concentrate on their core strengths, while specialized partners manage the logistics details.

9. Top Reasons to Outsource Logistics Roles

Here are five reasons why outsourcing logistics roles makes sense:

1. Cost Reduction: Outsourcing cuts costs on labor, tech, and storage.
2. Increased Access to Expertise: 3PLs are logistics experts, which means fewer mistakes and more efficiency.
3. Flexibility and Scalability: Scale up or down based on demand.
4. Risk Management: Reduce risks related to transportation, storage, and compliance.
5. Improved Service: Faster delivery and better customer service.

10. Things to Consider Before Hiring a Logistics Provider

Before choosing a 3PL, consider the following:

• Service Scope and Capability: Does the provider meet your needs?
• Expertise and Reliability: Do they have a good track record in your industry?
• Technology and Integration: Are their systems compatible with yours?
• Costs and Pricing Structure: Understand all fees and charges.
• Regulatory Compliance and Risk Management: Are they compliant with all relevant laws and regulations?

11. What to Look for in an Outsourced Logistics Provider

Choosing the right logistics provider is crucial. Look for:

• Innovative Problem-Solving: They should anticipate challenges and offer solutions.
• Data-Driven Decision-Making: Use of analytics to optimize operations.
• Adaptability: The ability to adjust to changing needs.
• Good Communication: Clear and open communication is key to a successful partnership.

12. In-House vs. Outsourced Logistics

Should you keep logistics in-house or outsource? Here’s a quick comparison:

• In-House Logistics: Offers more control but requires significant investment in staff, tech, and facilities.
• Outsourcing Logistics: Provides cost savings, expertise, and scalability, but may limit flexibility.

Consider your specific needs and resources to decide what’s best for your business.

13. When Should You Consider Outsourcing to a 3PL?

Consider outsourcing to a 3PL when:

• You’re facing high logistics costs.
• You lack in-house logistics expertise.
• You’re expanding rapidly or entering new markets.

These are clear signs that outsourcing could benefit your business.

Conclusion

Many businesses need an efficient solution, and outsourcing logistics can be a breakthrough for them. It is effective because it brings cost savings, experience, and options that can aid your development and profitability. But it’s not without its challenges.

It is thus important to consider one’s needs and select the appropriate partner to exploit the opportunity without exposing oneself to risk.

Think about your logistics strategy. Is it time to outsource? Make sure you weigh your options carefully and make the best decision for your business.

For businesses considering whether outsourced logistics is the right choice, gaining a solid understanding of logistics and supply chain management is crucial. BRASI’s CISCOM – Certified in Supply Chain & Operations Management training course provides a deep dive into logistics strategies, including the pros and cons of outsourcing. This six-month hybrid course offers the flexibility to start anytime, with self-paced learning and instructor support as needed. Enroll now to earn an industry-recognized certification and sharpen your decision-making skills in logistics management.