Outsourcing is the practice of hiring external resources to complement (provide skills not held internally) or supplement (provide additional skills or capacity) your existing internal capabilities.
Outsourcing logistics wasn’t that popular a few decades ago. Before the 1970s, companies used to perform all business operations internally. That included product manufacturing, storing, and delivering. But as companies sought competitive advantage many decided to focus on their own core business and leave the logistics to others whose core business it is.
Logistics Outsourcing Trends and Statistics:
Some companies outsource, but then move back to their in-house solutions. This can be a difficult and expensive exercise that can be avoided. Up to 75% of companies outsource all or part of their logistics, mainly transport and warehousing. In 2017, a report from Armstrong and Associates depicted how more than 90% of Fortune 500 companies, in the US alone, are outsourcing their logistics.
A company whose core business is marketing and/or manufacturing an excellent product won’t necessarily have the right skills, resources and experience to store and transport it efficiently. It may be the case that the volume of throughput does not justify the investment in systems and expertise to achieve competitive performance in logistics. That’s where third party logistics providers step in.
Some believe that cost-saving is the only reason to consider outsourcing logistics. But in fact, a small percentage of the companies that work with a third-party logistics provider are doing it just to save money. Other benefits include freeing management to focus on core business and improving sales from better customer service.
Outsourcing can help in cost-saving. However, as a business owner or manager, not having to deal with problems with warehousing or transport frees you to concentrate on growing the profitability of the core business — your 3PL provider is responsible to solve the myriad daily logistics challenges. Other key reasons to consider outsourcing include:
But perhaps the most important reason for small and medium-sized enterprises to outsource logistics is that they can exploit the benefits of advanced technologies in logistics, without the overhead costs of developing, introducing and maintaining it.
Outsourcing should be a Strategic Decision, but not a Strategy:
It would be a mistake to take logistics outsourcing lightly, regardless of business size. There are many pitfalls. Take Outsourcing as a strategic decision for long-term benefits. Speak to Supply Chain Services Australia and we can steer you through the process, help avoid the pitfalls and exploit the advantages of outsourcing logistics.
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Whether to outsource any logistics functions to an external 3rd party logistics service provider (3PL) is an important decision for a business to make.