Third-party logistics providers offer support for manufacturers. But are they worth the money?
Michel Baudin, author of Lean Logistics, defines third-party logistics (3PL) as companies who provide supply chain services for suppliers and customers. Services may include transportation, warehousing, cross-docking, inventory management, packaging, freight forwarding, milk runs and managing returnable containers.
Costs are negotiated between the manufacturer and the 3PL, says Baudin, and are usually on a pay-as-you-go plan. By sharing the 3PL's resources, you pay only for services you use, instead of keeping employees on staff, making capital investments in logistics infrastructure and covering variable costs that may put you over or under capacity as orders vary.
A 3PL may provide logistical know-how you lack, and may have more sophisticated methods and resources, Baudin explains. By crossdocking at its warehouse, for example, the 3PL can convert homogeneous truckloads from suppliers into more efficient mixed loads that production plants or dealers need. In general, the less central logistics is to your business, the more you should consider outsourcing it.
The downside of outsourcing is loss of control, cautions Baudin. You have to trust a third party to dedicate the resources you contracted for, which may be a problem if they're being used by another company. Mistakes by the 3PL can affect your lead time and quality. A 3PL may not be the best choice for logistics that require product knowledge. For example, a 3PL's driver checks whether item numbers and quantities are correct, but cannot be expected to recognize the wrong part just by looking at it. For that reason, your own employees should kit parts and make modifications to your product.
Decisions about whether to outsource logistics or not, and your choice of a 3PL service provider, Baudin emphasizes, are strategic ones. Don't leave anything to chance, know exactly what your contract includes and stay on top of key metrics.
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