Outsourcing to a 3PL Your Supply Chain Managemens activities
Manufacturers have long used third-party logistics (3PL) companies to manage some or all of the basic supply chain operations. Their reliance on 3PLs to manage more of the supply chain has increased significantly. There are multitudes of benefits companies gain by outsourcing 3PL:t & Logistic
Increase Revenue:
- Increase flexibility & responsiveness
- Increase speed to market
- Improve quality
- Decrease customer response time
- Gain access to new markets
- New value-added services
Improve Capabilities:
- Focus on core business
- Gain access to new technology
- Gain access to advanced skills
- Provide flexible facility capacity
- Create additional capacity
- Provide backup capability
Reduce costs:
- Reduce operating costs
- Meet downsizing requirements
- Reduce capital investments
- Transform fixed to variable costs
- Reduce development costs
- Reduce healthcare exposure
Logistics Outsourcing – Is it Right for Your Business?
While these and other valid and appropriate motivations drive outsourcing decisions, some companies use inappropriate reasons to justify their decision to outsource. Some companies choose to outsource simply due to lack of understanding of logistics processes. Lack of necessary skills may be a valid reason for outsourcing but companies should maintain enough knowledge of their logistics processes in order to effectively manage the outsourced relationship.
Other companies justify their outsourcing decision on the ability to better identify the true cost of supply chain operations; some others want to off load the problems and issues associated with managing logistics operations. Companies should first seek to understand their true logistics costs prior to outsourcing in order to make better decisions and build better relationship.
Another popular perception is that customer complaints will automatically increase due to decreases in overall service levels if an operation is outsourced. The belief is that the partner will not care about the business as much as internal employees do. This perception is based on the assumption that 3PL providers only care about their revenue. Some companies have a strong perception that only they know their business well enough to effectively serve their customers and no other company can do it as well because their operation is unique. Outsourcing motivations will ultimately impact partner relationships and supply chain performance either positively or negatively.
Making the decision to outsource selected supply chain functions and processes to a 3PLcompany can be challenging yet rewarding to the organization. Supply chain functions have grown increasingly complex with globalization, technology, and competition advancing at a rapid pace. Careful consideration and analysis of cost factors, performance gaps, financial impact, and suitability for outsourcing yields superior outsourcing strategies and transition plans. The general motivations for outsourcing these operations fall into three main categories: increase revenue, improve capabilities, and reduce cost.
When selecting a strategy of outsourcing, a company must objectively evaluate its operations relative to outsourcing options. An outsourcing evaluation team should include members from the supply chain organization, finance or accounting, and sales. Outside expertise can be very useful for performance gap analysis in order to obtain objective results. Suitability analysis refers to objectively evaluating process details in light of the performance gaps to determine the most likely candidates for outsourcing.
Consider logistics outsourcing if:
- 3PL providers support your industry or support businesses with similar operational attributes.
- Economies of scope and scale are available for a
- 3PLs potentially have a significant cost and service advantage.
- Outsourcing will fill operational performance gaps.
- Outsourcing will not directly impact customer communications and relationships.
- The 3PLs have a better warehouse management system or can effectively operate using your existing WMS.
Once the decision to outsource is made, the team will begin the implementation process by creating the outsourcing plan and preliminary budgets and schedules. Outsourcing is a two-way street; a reputable 3PL should collaborate and report to you regularly to create visibility and real-time metrics into your processes than ever before.
3PL outsourcing ultimately requires TRUST. Handing over various aspects of supply chain operations to a partner can be difficult for organizations that do not typically view their suppliers as cooperative partners. TRUST is required and both parties to the relationship must do their part to build and maintain that TRUST in order to manage a successful operation.
So if you were thinking about it, what will you do differently now?
Dave Food
Prophetic Technology