What Is Logistics Outsourcing?

Published on
Dec 21, 2022
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Logistics outsourcing is when a company hires a third-party provider to manage various parts of their supply chain operations. These providers, also known as 3PLs, can handle warehousing, inventory management, fulfillment services, shipping and freight forwarding, and even reverse logistics. More businesses are outsourcing logistics as supply chains become more complicated, physical assets and technology become more expensive, and talent grows scarcer. Outsourcing can streamline day-to-day operations—allowing staff to focus on core business functions and customer satisfaction. In turn, your business can flourish.

What do 3PLs offer?

While 3PLs typically don't offer as many services as 4PLs, you still have plenty of functions to choose from. 3PLs could be the right choice for you if you want to outsource logistics in any or all of the following areas:

Warehousing and distribution

Warehousing and distribution can be one of the most expensive and complicated logistics operations, especially for small businesses. Seasonal and economic fluctuations affect the amount of space you need at a given time of year, yet most leases require you to pay for the same amount of space year-round—meaning you end up paying for unnecessary space. You’re also responsible for warehousing equipment as well as insurance and utilities. With all of these costs, it’s no surprise Statista’s global survey of logistics executives found that 63.5% of shippers outsource their warehousing activities to 3PL providers. With outsourced logistics, you only pay for the space you need, and you share the cost of equipment, utilities, and even staff. You're also able to keep your product closer to the customer in various locations, allowing you to ship your products faster. A good warehousing and distribution 3PL will store, pick, and pack your orders quickly and efficiently.

Transportation management

Transportation management is an essential part of your business that directly affects customer satisfaction, and therefore your business growth. You need your goods to arrive on time and damage-free, yet you also want to find a cost-effective solution. The larger your business and the more products and locations you have, the more complicated your freight logistics may be. That's where outsourcing logistics to a 3PL may come in handy.Transportation management 3PLs, with access to freight brokers and freight agents, have expertise around freight modes, carriers, regulations, and more. They have their own infrastructure, either via their own fleet or by partnering with carrier networks. If they partner with carrier networks, they may have greater bargaining power and can negotiate favorable contract rates on your behalf.

Supplementary services

While basic warehousing and transportation services are the most common outsourced logistics, other services are also on the rise. Warehousing management is one such area. In addition to simply storing and distributing goods, a warehouse management 3PL may also provide inventory management, product tracking, and analysis and reporting that can reveal new efficiencies.Other supplementary services include customer and fulfillment support, which might mean taking customer service calls, processing and packaging orders, and managing warranties. Outsourcing reverse logistics, or the management of customer returns, is also increasingly common.

Benefits of logistics outsourcing

There are many benefits to outsourcing your logistics, especially warehousing and transportation. Doing so can save time, resources, and take your business to the next level. Some of the most common benefits of outsourcing include:

Transportation cost savings

According to Statista, transportation accounts for about two-thirds of all business logistics costs in the US, adding up to more than $1 trillion per year. Outsourcing transportation logistics can help you save money in various ways, including the ability to negotiate lower rates with carriers and select the best shipping modes for your load, like truckload, less than truckload, or shared truckload, an option only offered by Flock Freight.

Access to the latest tech

Surprisingly, one survey by Gartner found that only 34% of respondents named saving money as a top reason for outsourcing. So what's really driving outsourcing? The need for the latest logistics technology was a big reason. 3PLs can often give you access to new or proprietary technology that you may not be able to integrate as easily on your own. Flock Freight’s patented technology is an excellent example of how tech can provide you with an alternative to outsourcing your freight management. Our guaranteed terminal-free shared truckload option, FlockDirect®, matches locations, schedules, and product types—finding the best options to pool freight among billions of possible combinations and eliminating the hassles of the hub-and-spoke model.

Streamline complex logistics operations

Outsourcing logistics allows you to choose the areas of your business in which you need the most help, while keeping other operations in-house. Ideally, your 3PL will seamlessly integrate with your existing systems and provide exactly the expertise you need. This allows you to streamline your operations and focus your resources where they are most needed.

Challenges of outsourcing logistics

While there are plenty of benefits to outsourcing your logistics, you may also run into challenges. Some potential obstacles include the following:

Strategic alignment

When you have many companies involved in your operations, you may have issues aligning everyone around the same strategy. Always ensure you keep the lines of communication open and are clear about your strategic direction, as well as what you expect from each provider, including specific KPIs. Treat your 3PLs as partners and make sure you’re not operating in silos.

Lack of flexibility

Not all 3PLs are as agile and flexible as you may desire—especially if you find yourself working in silos. When you outsource a significant portion of your logistics to the same company, that 3PL becomes like an extension of your own organization. Make sure they’re able to respond quickly and easily to changing customer and market demands.

Software compatibility

Many businesses turn to logistics outsourcing because a 3PL has innovative technology that they want to incorporate. However, if this software does not easily integrate into your existing tech stack, outsourcing may turn into more of a hassle than you were expecting. Before you commit, make sure you have buy-in from your internal teams as well as a good integration between systems. With Flock Freight, you can book online in minutes through the Flock platform or natively integrate with your transportation management system (TMS) via API or EDI to streamline workflows.

When should you outsource logistics?

Many businesses outsource their logistics, but that doesn't necessarily mean you need to. So how can you tell if this service is right for you? Ask yourself if any of the following apply to your business:

  • you want to scale your business quickly while keeping costs under control
  • you’re restructuring your business
  • you’re entering a new market
  • your costs are rising
  • your customer service levels are deteriorating
  • your in-house team is working in areas that are not their expertise
  • you're having trouble hiring the right people
  • you want to focus more on your core business needs

How much should you outsource?

The great business management consultant Peter Drucker said, “Do what you do best and outsource the rest.” When it comes to logistics, outsource as much as you must to improve your costs and efficiencies, but not more. Outsourcing too much or to the wrong 3PL can actually increase your costs and decrease your efficiency.To decide how much to outsource, ask yourself these questions:

  • What are your core business functions? Anything outside of these core operations may be worth outsourcing.
  • What exactly do you want to gain from outsourcing? Ask yourself how outsourcing various logistics could improve specific KPIs for your business.
  • Where are you having the most trouble hiring? Determining which employees or departments need the most help can help you pinpoint what to outsource.

Use Flock Freight to optimize your shipping operations

There's another option when it comes to outsourcing logistics—one that comes without the potential downsides of working with a full service 3PL. Flock Freight is pioneering a new way to manage your freight logistics at scale. With Flock Freight, you maintain ownership over your freight logistics and manage it more efficiently. Our platform helps you book the best mode for your load in minutes—from TL and LTL to terminal-free, shared truckload options that deliver your goods on time and on budget. Start managing your freight logistics with a flexible and easy-to-use platform. Join the Flock and see how we can help you find the transportation solutions you need while improving your bottom line and customer satisfaction.