supplychainmgt Logistics outsourcing is a trend that has strengthened lately. Increasing number of companies have outsourced their logistics management to third party logistics providers (3PL).There are many companies whose core competency is logistics management of other companies.

 

These companies leverage their core competency to achieve high efficiency and effectiveness. Outsourcing the logistics management function enables a company to focus more on its core activities. Many businesses outsource their logistics in order to achieve cost savings. Some companies also outsource their logistics management in order to improve effectiveness. Dedicated logistics management companies with their extensive network and infrastructure can improve delivery time of the business and lead to higher customer satisfaction.

 

In its Request For Proposal (RFP) for choosing the logistics provider a business should clearly explain its exact requirements and needs. Different logistics companies have different areas of core competency. Some logistics providers have their core competency in warehousing, others have in transportation, while others have in managing global logistics. When the RFP clearly specifies the requirements of the company and capabilities needed on the part of the logistics provider it becomes easier to get the bids from the right logistics companies.

 

The 3PL partner chosen by the company should be one who can meet the level of operational excellence required by the company. Performance objectives of the logistics management should be clearly explained in the RFP.It is important that that logistics partner company is chosen whose organizational culture is similar to the company outsourcing its logistics. When the organizational culture is similar, strategic collaboration is enhanced. The two companies are able to communicate effectively and the logistics partner is able to understand the expectations of the outsourcer in a better way.

 

Due diligence with regard to the service record and operational capabilities of the prospective logistics partner should be done before the contract is finally awarded. Transparency and honesty should be there in the communications between the company and its logistics partner. In order to ensure that no disruption takes place once the logistics management is outsourced, sometimes it can be helpful to also look into the financial history and financial health of the company to whom logistics management is being outsourced. Any disruption at a later stage due to financial problems at the 3PL provider can derail the operations of the company and lead to customer complaints and customer dissatisfaction.

 

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4 thoughts on “Is outsourcing to 3PL risky?

  1. I have one question. How do we measure the performance of the 3PL vendors? How do we ensure (or come to know) that the vendors meets the Service level agreements?

    Thanks,
    Sakthi

    • Sakthi, that is a very pertinent question. Most 3PL companies will not share data of their other clients and there is very little public information on 3PL service levels. So the only choice is to network with other customers of the 3PL and share data between non-competing companies.
      Regards

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