Logistics Outsourcing

Logistics Outsourcing: A simple solution to gain a competitive advantage and increase the bottom line of your company

By Robert L. Graves

Transportation and logistics, despite its recent attention, is not new.   What is new is the combination of transportation, distribution, warehousing, customer service, and related management functions into a single business entity called logistics. Logistics can provide an important lifeline to the overall success and profitability of any business. Traditionally, the responsibility of these functions has been fragmented among various in-house departments and business functions. Today many small to mid-size companies have sought to obtain a competitive advantage by improving logistic practices and techniques.   One of the more popular trends is to outsource some or all of the logistics functions to a third-part logistics company.

Advantages of Logistics Outsourcing

Logistics outsourcing began in the 1980s when firms sought to streamline management. This industry developed to serve companies needing to concentrate on their primary business, which allowed time and resources to be focused on the entrepreneurial spirit and core competencies of the organization. 

Today the logistics outsourcing industry continues to thrive by substantially reducing transportation expenses, by typically 10-35 percent, through the use of a third-party logistics firm knowledgeable on the best practice techniques and strategies in the industry. The savings offered by logistics outsourcing further enhances a company’s competitive advantage by improving earnings; freight savings directly increase the bottom line.           

Logistics outsourcing can also increase control over expenses that were not sufficiently understood or managed and provide access to state of the art services and technology without a major capital outlay. Small to mid-size companies can benefit by leveling the playing field against larger competitors. Third-party logistic companies generally consist of experienced transportation professionals whom provide diverse industry backgrounds and invaluable insight from prior experiences.

Services Offered By Third-Party Logistics Companies

Third-party logistics companies offer a wide variety of services. Most importantly, services are tailored and made flexible to fit the exact requirements of each client. Specifically, third-party logistics companies can replace a particular function or the entire client’s logistics department. Third-party logistics companies assume all responsibility for the outsourced functions.

Third-party logistics companies negotiate rates with all carriers and select the most cost-effective mode of transportation, whether it is air, small package, less than truckload, or truckload (either over the road or rail). Third-party logistics companies then select the best carrier for all inbound and outbound activity. Most third-party logistics companies offer expertise in international transportation involving both imports and exports. Additionally, third-party logistics companies may offer freight payment and auditing, warehousing, product distribution, and logistics consultation.   

Pricing and fee structures charged by third-party logistics companies are generally customized to meet the needs of each client. There are generally no start-up or implementation costs and most are designed to provide compensation to the logistics company only if savings are achieved. 

Conclusion       

Logistics and transportation are a necessity for every business, whatever the size of the organization, and can affect service and profitability if not effectively managed. While outsourced logistics are often associated with large global operators whom manage multi-modal supply chains for the world’s largest manufacturers and retailers, today small to mid-size companies can benefit equally from hiring a third-party logistics company. Increasingly, smaller businesses are choosing to partner with these service providers to improve their logistics and transportation functions and to refocus internal resources on their core competencies.   Logistics outsourcing can be a valuable solution for companies of all sizes to decrease transportation costs, increase efficiency, and enhance competitive advantages.   

Robert Graves is president of New Ark Logistics—a company specializing in freight management, logistics, and warehousing. He can be reached at 314-518-3823.