Manufacturers & Distributors ARTICLE -
Could 3PL Lower Your Logistics Costs?

Target Audience: Manufacturers and Distributors, M&D Companies, Manufacturing Companies, Distribution Companies, Cost Controlers, Third-party Providers, Problem Solvers

Under constant pressure to control costs and streamline operations, many manufacturers are outsourcing some or all of their logistics functions.

Some companies choose to let third-party providers handle only transportation or warehousing; others opt to outsource everything from packaging and assembly to inbound transportation and freight consolidation. Regardless, manufacturers who outsource say it allows them to concentrate on their core capabilities and reduce their supply chain costs.

If you haven’t considered the advantages of third-party logistics (3PL), you may be missing an opportunity. Then again, if you’ve considered the advantages without fully understanding the risks, you may be setting yourself up to fail.

Calculate the risk

Let’s look first at why 3PL may be a good idea. For one thing, good providers invest in state-of-the-art technology — including radio frequency identification — that may fall outside your financial or technical capabilities. You may not be able to justify some cutting-edge logistical expenditures, but 3PL providers can because it’s their business.

As demand for their services grows, 3PL providers have become adept at accommodating just-in-time operations. An automaker, for example, may use a 3PL provider to get parts from suppliers, deliver them to cross-docks, consolidate them into shipments and ship them to plants throughout North America. The parts aren’t warehoused or inventoried at any of the plants; they’re just used.

Equally important, contract logistics companies are becoming more experienced in their own fields. Some of today’s providers can help you identify problems and offer integrated solutions.

If, for instance, you require frequent small orders of perishable or time-sensitive materials, 3PL providers can combine shipments of similar orders to reduce freight and handling costs and make delivery more efficient.

Don’t fix what isn’t broken

Advantageous as 3PL may be, however, there are some things you should consider before you commit to it. First, if you have a highly efficient and effective logistics system in place, you may not save money by outsourcing. Check the numbers before you proceed.

Second, before you hire a 3PL provider, develop guidelines for evaluation. Ask questions such as:

• Do you use the same terminology?
• Does the provider have experience in your industry?
• How compatible are your respective existing technology systems?
• If you have company-specific problems or situations, can the provider accommodate your requirements?

At the same time, establish a mechanism for monitoring the company’s work and appraising the outcome. You’ll need to measure not only costs, but also whether the provider is working with you to identify and correct operational problems before they become significant.

Additionally, you must recognize that 3PL providers aren’t miracle workers. Don’t expect them to solve all your problems or to turn your supply chain into a world-class operation without your help. Establish clear communication paths and meet regularly to review and adjust goals and expectations. Improvements may take time, but they can result in significant benefits.

Finally, understand that direct cost reduction isn’t the only measure of success with 3PL. As you contemplate outsourcing, look into whether it will bring overall gains in customer service, IT and corporate asset turnover (return on assets, equity or investment).

Assess for success

If you’re realistic in assessing your needs, conscientious in selecting a provider and attentive in monitoring the program, 3PL can allow you to redirect some of the money you would otherwise use for logistics to your core operations. And in doing so, you may very well strengthen your bottom line.

Find out how our accountants and consultants can add value to your business. Email us or call us at 1 (888) 875-9770.

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