Recent trends have shown that the 3PL world has steadily been on the upswing for the last 20 years. Why are shippers moving from insourcing transportation and acquiring assets to an outsource model with 3PL companies?
Studies have shown that over the last 2 decades 3PL providers have been able to not only take the burden off of shippers, but to also find cost saving initiatives for their clients. There are both benefits and disadvantages to a complete outsource that I will explain in this article.
But first, what is a full outsource and how can it benefit your company? Outsource, by definition, is contracting work out to another company. In the logistic industry, a full outsource would entail sending all orders through a 3pl provider to manage and consolidate freight. Today, you see many emerging manufacturing and distribution companies outsourcing their logistics responsibilities to 3PL companies. These 3PL’s are then in charge of receiving the customers’ orders, optimizing routes, gathering the carriers, equipment, and people, ensuring that product gets to the end receiver, and most importantly handling all the data associated with the transportation.
You can see the benefits of outsourcing transportation just by listing through the steps a shipper no longer has to take to stay in control. Clients that are in hopes to find a dependable full outsource solution should ask: What is their company culture? Does their services offer what I need? Are they capable of scaling up to maintain service levels as our company grows? Blue Ribbon Transport (BRT) is a 3PL that drives to stay ahead of the competition. We believe that service levels are paramount to the continued success of any outsource program. BRT has worked hand in hand with our clients to ensure a smooth and successful transition with full transparency and communication. To go into more depth, studies have shown the following benefits have come from a full logistic outsource:
- Costs– 3PL’s have carrier relationships and access to superior and low price providers.
- Adjustment and Flexibility– 3PL’s have the ability to flex when the market shifts. Shippers no longer have to buy assets and when business gets slow there is no need to sit on underutilized equipment.
- Lower Headcount– With 3PL’s handling majority of logistic duties, shippers no longer need to employ personnel to oversee day to day activities.
- Focus on Essential Concerns– Shippers no longer have to split time between departmental focus. This allows businesses to concentrate on production/manufacturing etc.
- Technology- Majority of 3PL providers now offer TMS access and data warehousing giving the client real time updates and information.
- Access to Networks- Larger 3PL providers have access to warehouses and storage facilities across the country. Emerging clients can take advantage of National Distribution Networks for LTL shipments and cutting costs significantly.
- Consolidation-Third Parties have a large customer base that cross consolidation can occur. This is particularly favorable for shippers if they are sending out LTL shipments that they are currently paying FTL rates for.
- Service- Service is what 3PL’s strive for as a value adding service to a shipper/customer.
- FSMA Compliance- With new and ever changing FDA regulations, 3PL’s have the ability to adapt to regulations.
- Shared Risk- By utilizing a 3PL customers can mitigate risks by having a third layer added.
- Knowledge – 3PL’s are experts in the logistics and transportation industry. Utilizing the correct 3PL can give customer the advantages of expert knowledge.
On the other hand, Insourcing can be beneficial for companies. By definition, insourcing is the decision to maintain control. In the logistics industry, when a company chooses to insource transportation they are choosing to hire a subject matter expert, or a consultant to design and control a transportation department. This leads to benefits such as the following:
- Control-Shippers still have complete control over all decisions and outcomes.
- Self-Sufficient- Easier transition from one shipping model to another happens when there is not another party involved.
- Confidentiality – By keeping all data in house, Shippers are able to know exactly who can access information
- Layers- There is not a 3rd layer of business in the communication flow making it easier to gather information
- Costs- Shippers will know exact cost of transportation without having additional expenses.
- Equipment- Having equipment at client’s disposal to move product when needed.
There may not be a right or wrong decision, but knowing what your company needs to thrive and achieve continued success is the first step to selecting your direction. There will always be resources available to help along the way, whether that’s employing a subject matter expert, contracting a consulting firm, or a full outsourcing to a 3PL provider. If you’re just getting started and need a helping hand, BRT has the resources to help you hit the ground running.
Trish Monroe – Senior Optimization and Implementation Consultant