Logistics outsourcing refers to the process of collaborating with an external company to manage a portion or all of a company's supply chain and logistics operations. In recent years, more companies have turned to logistics outsourcing as a way to improve their supply chain efficiency, reduce costs and improve customer satisfaction.
In this blog post, we will discuss the main benefits of logistics outsourcing and why companies are choosing to outsource their logistics operations.
Outsourcing May Pay For Itself
No one likes the idea of spending more money than is needed on business expenses. In fact, the ideal scenario is one in which the services that you outsource actually generate high enough margins to pay for themselves while also helping the business to see higher profits.
Luckily, due to the very nature of logistics outsourcing, companies can usually very quickly realize some cost savings. By outsourcing some or all of their logistics operations, they are in a position that reduces or even eliminates some overhead costs over time. Since they do not have to invest in the infrastructure and resources needed to manage these operations internally, companies can instead use those savings on other segments of their supply chain.
The Ripple Effect
Outsourcing tasks in one area of your supply chain can have a ripple effect that benefits many areas of your business; this is peripheral optimization and it is an often underappreciated value-add that comes with outsourcing.
No, you likely won't acquire 3PL services for free. But if you are working with industry-leading 3PL and modern 4PL providers, your business is going to feel it across the board. Every part of your business is connected in one way or another, and usually in many ways at once. What you do in one area can and will affect another. These are not always radical benefits, but when you outsource logistics tasks to a professional 3PL/4PL provider, you increase the odds that those little ripple effects are more like giant waves.
Access to Specialized Expertise Opens up Via Logistics Outsourcing
By outsourcing logistics operations, companies also gain access to specialized expertise and technology for them to leverage. Good 3PL providers have a deep understanding of the logistics industry. Due to this, they are capable of providing valuable experience, solutions and ideas to improve supply chain operations. Couple that wealth of industry knowledge with providers that have the resources to invest in the latest technology and you have a powerhouse that would be much more complicated to build in-house.
Generally, you want to look at providers that are tech-forward leaning and already have a full suite of software such as transportation management systems (TMS) and supply chain visibility platforms, which can provide companies with real-time visibility into their supply chain and improve decision-making via orchestration across an open ecosystem of providers. In this way, the benefit of outsourcing isn't just a short-term gain, it is access to systems that can help you better solidify the core framework of your supply chain.
Increased Supply Chain Flexibility
Outsourcing logistics needs can provide a company with increased supply chain flexibility. By outsourcing logistics operations, companies can quickly and easily scale their operations up or down to meet ebb and flow of ever-changing business needs. This is particularly important in today's rapidly changing industry landscape.
When a company owns their entire operation along with the equipment and technology they need to operate at optimal levels, it can be tricky to figure out how to decrease or increase certain activities. Just because you are not currently using those tools at any given time, they still cost you in upkeep if you outright own them.
On the flipside of that, if you outsource to a 3PL or 4PL, you don't have to worry about the fees, maintenance or upkeep of tools, that is all handled by the 3PL.
Logistics service providers have the expertise to manage risks and minimize the potential for supply chain disruptions. However, they may not always have the resources that they need in order to put that expertise to actionable use. By outsourcing, they are able to acquire the additional resources, tools and labor that they need — and quickly.
This can include ensuring compliance with regulations, reducing the risk of theft or damage to goods, and implementing contingency plans to minimize the impact of supply chain disruptions.
See if Outsourcing Your Logistics to a 3PL or 4PL is Right For You?
As logistics execution and supply chain orchestration gets increasingly complicated, now may be the time to consider logistics outsourcing. The Redwood team can help you evaluate whether a 3PL or 4PL is the best way to go, and of course, we can have a conversation with you to discuss your specific situation. Explore Redwood's 3PL/4PL services and connect with us today to get a better ROI for your logistics operation.