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How to Outsource Logistics Services

Third-Party Logistics in Supply Chain Management is the use of third-parties to outsource various components of their supply, warehousing and fulfillment infrastructure. This can range from moving trucks to fully automated packaging and labeling machines, from forklifts to pallets, and from warehouse staff to truck drivers. Using a third-party provider allows an organization to focus on their core business activities, while outsourcing their non-core operations to a third party company that has the expertise and experience necessary to fulfill orders efficiently and on schedule. The term third-party is often used to describe companies, partners, or suppliers that provide logistical support and other services, rather than the full-service providers who provide on-site facilities and full staffing capabilities.


Supply chain management describes a set of processes used in the supply of goods from conception to delivery. The key aspects are order identification and scheduling, transportation and storage, as well as bill of lading and clearing. A third party logistics provider can help organizations with these processes by taking care of the logistics aspect while an organization focuses on business aspects such as inventory management, supplier selection, and advertising. The shippers that a third party logistics provider services can provide include international and domestic clients. They can also provide customized solutions for particular industry subgroups, such as the international courier industry. Some of the common services provided by these third party logistics providers include freight consolidation, contract tracking, insurance claims processing, and freight auctioning.


Supply chain performance has come under increased scrutiny over the past few years because of issues surrounding outsourcing and the impact it may have on the level of customer satisfaction. One of the main problems associated with outsourcing is the inability to accurately determine the cost savings realized due to contracting with a third party logistics provider. Many in the supply chain community believe that there is a lack of transparency in the costs and rewards associated with third party logistics. Many of the costs are not documented or recognized, which makes tracking and comparing costs difficult.


Freight transportation and warehousing are the two most important components of the shipping services provided by third party logistics providers. This includes the movement of products from the manufacturer to the fulfillment center and back again. Warehousing services are necessary to provide on-time delivery of finished goods. In some cases, the warehousing requirements may extend to secure storage areas of the manufacturer's warehouse and shipment back to the customer once products are received and inspected.


To analyze the efficiency of an organization, it is important to understand the shipping and warehousing requirements of the business model. The relationship between the supply chain and the third party logistics company needs to be understood to determine whether the organization will realize the costs saved through contract fulfillment. To develop a successful shipping and warehousing business model, organizations need to analyze the existing operational processes to determine if additional investments are needed. The evaluation should focus on current practices, future expansion needs, and the impact of outsourcing contract fulfillment.


The ability to contract with a third party logistics provider will allow companies the ability to streamline their operations. Contracted logistics services may include the ability to improve inventory control, order management, shipping and fulfillment process, among other capabilities. The logistics providers typically provide specialized knowledge that can help the organization achieve its goals. Organizations should evaluate the extent of the logistics services offered and compare those benefits with what they currently spend.


Outsourcing is advantageous for businesses that are looking for cost savings in their shipping and warehousing activities. This option allows organizations to focus on core processes while seeking cost savings. When organizations seek to outsource, they often outsource their entire transportation and warehousing needs. However, a good logistics provider can leverage its experience to deliver customized and cost effective solutions to address business objectives.


Many organizations also outsource fulfillment needs when they face short or long term logistics challenges. Many providers offer additional services, including custom fulfillment and the use of multiple shipping methods and carriers at the same time. A good provider will have expertise in using these additional services effectively and at a reasonable cost savings. Many supply chain experts offer customized plans for short and long term contracts. These plans can help organizations to more effectively manage their shipment and delivery activities and achieve cost savings in transportation costs, availability, and other factors. These additional services can further enhance an organization's strategic positioning.

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