Whether tis nobler in the mind to suffer the slings and arrows of outrageous fortune or by opposing end them. Now our friend Sir William Shakespeare lived in a time where people, businesses and society as a whole were very self-sufficient. But what if Sir William were to appear today as the president/owner of a private company or as an executive officer of a large public company. How would he go about deciding to outsource or not to outsource? As Sir Williams self-appointed guide in this travel through time, I would advise him to first understand both options thoroughly and at the end ask yourself just one question. To outsource or not to outsource that is the question.
Sixty percent of all Fortune 500 companies outsource their logistics and supply chain services to a third party logistics provider. This represents a growing trend. As corporations continue to strive to improve their profitability by reducing costs, more and more firms are utilizing the specialized expertise that 3PLs apply to supply chain challenges. From small manufacturing companies to catalog marketing firms, industry is turning to 3PLs to deliver their products more inexpensively, more reliably, and more efficiently.
When considering the future of the supply chain, logistics, or fulfillment needs of your business, there are several things to consider. When you consider whether or not to find a 3PL partner to help improve your logistics, you should always make certain that a logistics provider is going to have the flexibility and adaptability to maximize your companies profitability.
Every sector has different demands and will likely need different services from a 3PL partner. For example, according to the 11th Annual Third-Party Logistics Study 2006, 88% of all automotive companies surveyed used third-party logistics providers. This study also finds that 86% of chemical firms, 89% of high-tech and electronics firms, and 92% of all life-sciences and pharmaceutical firms outsource a portion of their logistics. If ninety percent of firms within your sector are currently outsourcing, you should take a hard look at the efficiencies that a 3PL can supply.
Third-party logistics providers generally are designed one of two ways asset-based and non-asset based. An asset-based 3PL will own much of the supply-chain infrastructure (trucks, DCs, Warehouses and WMSs) and will need to manipulate your inventory through an existing route while a non-asset based 3PL will likely seek to improve, streamline, and rationalize much of your existing supply chain.
The accompanying chart illustrates some of the variables you need to consider before making any final decisions on outsourcing. Lets take one example drawn from our experience and show how a 3PL would work through the challenges presented by taking over a logistics supply-chain manned by unionized workforce whose flexibility was limited by a restrictive contract.
Lets consider the case of a consumer parts distribution center. In this scenario, a 3PL takes over responsibilities for managing the shipping and transportation, cross-docking, and pooled distribution network with the in-house transportation management staff. It also included the day-to-day supervision of and collaboration with a union-organized workforce.
Costs at this facility were rapidly increasing. Service and quality had suffered and the then-current union contract hampered the flexibility and performance of the facilitys operations. When the non-asset based 3PL took over the operation, it was charged with increasing productivity and efficiency, reducing costs, and improving customer service all in ways that were demonstrable and measurable.
Collaborating with the workforce, the non-asset based 3PL realized that they would be willing to be more flexible in exchange for motivating incentives. In order to improve accuracy and efficiency, they chose a system that aggressively monitored quality by fully auditing 5% of shipments on a random basis. The order fillers had no idea or control of what was being audited. The auditors also were not aware of the correct make up of the orders they audited. Using this system, a 3PL could cut transportation costs for the client by between as much as 7%. The workforce would see the rewards as well. By monitoring and maintaining a high-level of performance, employees could earn financial rewards on a monthly, quarterly, or annual basis, based on WMS/employee tracking system measurements.
As a non-asset based provider, the 3PL in our example could use the current tools available to realize significant improvements in efficiency. Where an asset-based 3PL would likely have had to move the warehousing operation into one of their own facilities, add either costly temporary staff or spend the money necessary to train new full-time employees, in our example the 3PL maximized the existing experienced staff.
This illustrates a significant advantage that non-asset based 3PLs offer. Often, working with an asset-based 3PL can seem like jumping head first into unfamiliar waters. By routing your supply-chain through the asset-based 3PLs existing warehousing and transportation system, a company new to logistics outsourcing can often feel like they are losing control of their inventory and their supply chain. On the other hand, non-asset based 3PLs can improve those parts of your supply chain that are currently working relatively effectively and replace those that arent working.
Further, non-asset based 3PLs can use a companys current warehouse facilities to allow a company new to outsourcing to keep some control of their supply chain. By using the investments that companies have already made in their supply chain, non-asset based 3PLs can also often significantly reduce initial capital costs.
Once youve considered these questions, you should be able to answer our logistical version of the Bards timeless question and know whether you should start talking to 3PL providers. But, for a company new to outsourcing logistics, Sir William would likely conclude that you should seriously consider using a non-asset based 3PL so you can see how well it works for your company with little risk.
Ron Cain is the CEO of TMSi (www.tmsilog.com), a Top 100 national logistics firm based in
