In the last session of our Service & Sales course, our professor stated that “partnerships with distribution channels and suppliers create extra value for its customers”. And also, our Logistics Professor said that outsourcing of logistic services as a very intelligent decision in many cases. So, I asked myself, what exactly are the advantages of outsourcing logistics external companies and how can extra value for the customers.
Third Party Logistics Service Providers (3PLs)
First of all, different classifications of Logistics Service Providers have to be understood. In this case, I am talking about “Third Party Logistics Service Providers” (3PL).
The 3PLs offer complex solutions, they do not only take care of transportation and distribution, but also of warehousing. Because of the high complexity of logistics, in many cases 3PLs are also providing additional tasks, so called “value-added-services”.
The can integrate parts of the supply chain, for example the customs clearance, order taking, or billing. They can also offer the assembly, packaging and labeling.
There do also exists “Fourth Party Logistics Service Providers” (4PLs) which can be defined as supply chain integrators. The different layers of logistic service providers are explained in this video, the focus on 3PLs is at minute 2:37.
So, what are the advantages of outsourcing logistic services to 3PLs?
- … save costs and time as 3PLs can work significantly more efficient due to their size and experience.
- … reduce the committed capital by using the 3PLs warehouses, fleets, technology, etc.
- … focus on their core-competences as 3PLs take care of logistics.
- … create flexibility when the customers demand is fluctuating as they us3 the 3PL´s warehouse
- … profit of the experience, know-how and networks of the 3PLs.
All these advantages seem quite logical and are the obvious consequence of using the whole logistic resources of a “Third Party Logistic Service Provider” which basically uses the concept of Economies of Scale.
But, how can a company create extra value for its customers by outsourcing logistic services to 3PLs?
The extra value for customers is basically created due to two main topics: Geographical coverage with fast deliveries and customer service improvements.
Geographical coverage with fast deliveries:
By outsourcing the logistic services two a big 3PL, smaller companies that may even be located in other countries can cover other regions and countries as well. Due to that, they can not only reach more clients but also deliver much faster to their customers. 3PLs can offer flexible models like express delivery for additional charges. The following image show online shops from Austria and Switzerland that can quickly deliver to customers in Germany.
Customer service improvements:
Big 3PLs usually provide access to advanced logistics technology for the companies. By using this technology, the can improve visibility, create aid-process efficiency and meet the customers demand for real-time information. An example for this is real-time order tracking. Also reverse logistics can be realized very easily via 3PLs and so creating extra value in speed and efficiency for customers.
Another example how customer service can be improved by outsourcing logistics services to 3PL is the customer service on shipping. A small or mid-size retailer does usually not have the means to provide a multi-lingual customer service – 3PLs do.