Is Logistics Outsourcing Right for Your Business?

Is Logistics Outsourcing Right for Your Business?

Is logistics outsourcing right for your business? The answer, of course, depends on you and your business — every case is different.

If you’re reading up on logistics outsourcing, I’m guessing you’ve run into some problems with your supply chain. Maybe you’ve found it difficult (or expensive) to maintain a warehouse and warehousing staff year after year — this is especially true of seasonally-based businesses.

Or maybe you’ve found that demand increases are outpacing your fulfillment abilities given your current infrastructure, while the investment required to catch up to demand is more than you can afford at the moment.

Maybe you’ve simply caught a big break and are just now getting to the point where that demand exists in the first place — and you’re wondering how to ensure that demand is met.

Or maybe you’re moving heavy, costly equipment, hazardous and sensitive chemicals or pharmaceuticals, or high-value electronics, a big contract just came your way, and you don’t have the time or the money to build out your supply chain to accommodate the load.

Maybe you’re just tired of doing it all yourself and handling everything in-house — maybe you just want to focus on those core services and products that your company does well while letting someone else handle the technicalities.

We understand — we built this company with the understanding that all of these issues and more are regular problems for many mid-market companies, and even some small businesses that are seeing impressive growth. We know that it can be frightening to consider logistics outsourcing, and there are a lot of misconceptions out there about the pros and cons of logistics outsourcing — even the word ‘outsourcing’ is a loaded term, fraught with political and social connotations that have little-or-nothing to do with logistics outsourcing in practice.

So let’s briefly discuss some of the pros and cons of logistics outsourcing and discuss how the savvy business owner can leverage outsourcing as a way of building additional value into their business.

The Pros and Cons of Logistics Outsourcing

Hiring a 3PL (third-party logistics provider) can provide some very real benefits, including the following:

  • A higher level of control over customer outcomes and the supply chain, as a 3PL, will be tightly focused on providing you with constant reports, data, and 24/7 access to that data
  • The ability to offload the complex and time-consuming operations related to the management of your supply chain, allowing you to focus on your core offerings
  • Cost savings through increased efficiency and decreased operational and staffing costs. Most people who work in the logistics and supply chain departments of actual shippers have this fear that they will lose their jobs if a 3PL is brought in. That may be true for a very small segment of people, but typically over 80% of those people get transitioned into other departments at the same company.  A reputable 3PL, such as Diversified Transportation Services, works in a collaborative mode with the existing logistics team to help them achieve greater margins in their business using our technology and our experience.
  • Increased customer satisfaction as the expertise of your 3PL provides a quicker, more efficient customer experience

Of course, for every pro, there is a con. Here are some of the reasons you might want to avoid outsourcing your logistics or hiring a 3PL:

  • You simply will never feel comfortable letting another company handle your operations, especially those that will heavily affect your customers
    • Let me guess – you had a prior bad experience with 1 single 3PL and you have decided to never use a 3PL again.  You think all 3PLs must be the same, right? That is the equivalent of saying every waiter or waitress is bad based on having one bad experience at one time with one restaurant chain.
    • Having an in-depth detailed conversation with a solid 3PL that has longevity in the marketplace is where it all starts. If you’re looking for the cheapest costs all the time, and that is your only KPI, then you will get what you pay for.  The introductory conversation with a solid 3PL provider is just like a job interview with lots of questions, lots of KPIs to focus on, and ensuring that both companies are on the same page.  Clearly, in a job interview, the prospective candidate does not say they will work for the lowest price, and at the same time, the human resource professional does not tell the prospect the pay in the first 2 minutes.  Building a solid relationship is key to the success of the partnership - and that starts with an in-depth conversation going over both parties’ ultimate goals to be achieved.
  • You have the time, money, expertise, and infrastructure investments in place to handle logistics yourself and don’t want to deal with major change
    • That is great if you have all these pieces of the puzzle in place, but a 3PL can always offer added value and help to meet the client's overall needs. While you may view the change as a major item to deal with, in most cases, the change can be financially rewarding to the client.
  • You run an extremely efficient operation and don’t believe that you’ll save any more
    • This is the most common answer that 3PLs hear. Just as our clients sell their products, a reputable 3PL sells the service and skillsets that they bring to the table.  Money can always be saved, but it is not always just on the net cost. Money can be saved via improved DSO – (Days Sales Outstanding) with more efficient invoicing, quicker deliveries, high customer satisfaction paying more for improved transit times, reduced administrative costs, and ensuring shippers spend more time taking care of their clients, rather than worrying about logistics.

While of course, these are valid concerns, it’s important to realize that, like anything else, there are exceptions to every rule — but what’s more important is to spend the time, money, and energy evaluating, as accurately as possible, your actual operational costs, your actual customer satisfaction levels, your actual performance gaps, and then ask yourself whether outsourcing to a 3PL will affect these metrics positively or negatively.

The truth is, that companies have been outsourcing their logistics operations for decades because they see how much money they can save in the long run by working with a 3PL while increasing customer satisfaction and efficiency.

However, you may not be able to see the truth of this without accurately evaluating your operations, and you may even need to bring in an outside consultant to help you identify performance gaps and true operational costs — you simply might not be able to see everything accurately from an internal standpoint.

Learn More About the Value of Logistics Outsourcing

If you’re considering the services of a 3PL, we’d love to talk to you about how we can help you make your business more efficient while keeping your customers happy.

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