ADVANTAGES OF OUTSOURCING TO A 3PL
AND WHY IT OUTPERFORMS INSOURCING
One of the most cumbersome aspects of expanding business globally is designing and implementing a supply chain that aligns with business strategies. Foreign regulations, licensures, customs, language and currency variations and establishing local supplier relationships are only a few of the barriers beyond U.S. borders. Providers also need a deep understanding of logistics trends—often not their focus or forte. In addition, the growing discipline of logistics and supply chain management is shaped by trends and developed best practices from across multiple industries, not just one specialty.
Third-party logistics providers, or 3PLs, are uniquely equipped with knowledge, resources and, most importantly, experience to help fill the gap for companies looking to go global (or more global) without a master’s degree in Logistics. Warehousing in particular is an area where companies can take advantage of time and cost savings from leveraging 3PL resources.
The following are benefits of partnering with a 3PL.
Cost efficiency is arguably one of the most compelling benefits of partnering with a 3PL. Instead of paying for an entire facility dedicated to inventory that often fluctuates and for which cost-to-store per product is inefficient, 3PLs allow multiple customers to share the burden of labor, space and transportation costs. Some 3PLs have facilities that house products from multiple customers, each with its own space tailored for the customer and product’s needs. These multi-client facilities allow customers to pay for only the space they use—a critical advantage for companies that cannot fill an entire warehouse all year round—improving their return on invested capital.
The ability to adjust warehousing space when inventory fluctuates is another huge advantage of leveraging a 3PL. This scalability of space and labor allows customers to be flexible with their inventory during routine shifts in supply and demand, product launches or during seasonal ups and downs. Outsourcing critical warehouse functions provides peace of mind, reassuring companies of all sizes that they can adjust their product flow when needed. If a company owns and operates its own facility, it may experience financial losses at the mercy of any of several factors influencing product supply, demand or availability.
Perhaps the largest hurdle for companies interested in distributing products overseas is being in the right location at the right time. Even after the international warehouse purchase or lease is final, businesses are still left with the burden of operating a warehouse in another country with different laws and regulations, different currency and unforeseen challenges. Companies interested in exporting should partner with a 3PL that has facilities in all corners of the world—literally. It’s essential for businesses to have their products close to their customers, reducing shipping time, improving customer service and cutting costs by eliminating unnecessary travel time between production lines and final touch points. A 3PL with in-country presence understands the local regulations and has ongoing relationships with local governments to facilitate success.
Not all advantages of a 3PL are visible on a financial ledger. One intangible but equally valuable benefit of third-party warehousing is the individualized attention global 3PLs can provide, resulting in increased accountability and transparency in the storing and distribution of products. Instead of multiple people managing product flow from several suppliers all over the world, partnering with a global 3PL allows companies to reduce the number of touch points required to manage an effective supply chain. And, instead of getting bogged down in communications and visibility management, outsourcing warehousing to a 3PL can help shore up supply chains with distribution and storage processes controlled by a single entity.
Doing business with a 3PL is a contractual obligation that requires transparency at a transactional level. Robust data is available to support performance metrics and key performance indicators to ensure that key stakeholders are informed. Often, accountability can even go beyond the four walls of the warehouse. In some cases, office functions such as order management, accounts receivable, service technician performance and the chargeback process used for healthcare clients can be managed by 3PLs, freeing up time and money that companies can allocate elsewhere.
Other frequently overlooked benefits of outsourcing warehousing to a 3PL include thought leadership and shared investments, which are especially important for complex industries such as healthcare. For example, having experts across industry sub-segments such as biologics, diagnostics, implantable medical devices and pharmaceuticals helps 3PLs deliver greater value to their customers; this expertise drives better solutions that solve the real pain-points of their customer base and the supply chain. And because 3PLs build solutions for an array of problems, all customers will reap the benefits. Some solutions, for example, require investments ranging from systems operations upgrades to IT improvements. Instead of the improved result belonging exclusively to a single company, it can be made available to all customers because those investments and upgrades were made using the 3PL’s resources.
Understandably, outsourcing to a 3PL can be a considerable decision, knowing that ownership over parts of the supply chain are in someone else’s control; that’s why it’s imperative for companies to choose a partner who can provide the deep industry knowledge and global experience to set companies up for success. Furthermore, a worthy 3PL partner should deliver on their promises, represent a reliable brand and exercise a professional approach to customers’ businesses.
With countless moving parts and constant evolution of logistics trends, international regulations and technology capabilities, companies need to carefully consider the 3PL partner that can deliver on key needs both in routine, day-to-day operations, as well as in extraordinary circumstances. n
Dan Gagnon is vice president of Marketing Global Logistics and Distribution at UPS.
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