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Disadvantages of Outsourcing Logistics

Although the decision to outsource logistical procedures is not an easy one, more and more companies are opting to do so, and with success The choice to outsource is usually done not only because of the necessity to expand and to scale, but also because most businesses are unable to keep up with a constantly changing and evolving supply chain by themselves. Outsourcing logistics to third party logistics (3pl) has many pros and cons. Knowing these can help you make such an important decision. In this article, we will describe major third party logistics advantages and disadvantages.

1. Disadvantages of Logistics Outsourcing

Articles like this usually begin with recounting of benefits but we are going to break the tradition and begin our discussion of third party logistics (3pl) advantages and disadvantages with getting the unpleasant things out of the way first.

1.1. Transfer of responsibility leads to a loss of control

Handing over your logistics to 3pl means, 3pl will be responsible for a large part of your communication and your relationship with your customers. If 3pl mess up, there are consequences for your company, because your partnership with 3pl is invisible to your customers. If something happens, you will be the one to blame. Because of that level of dependency in the relationship with 3pl, it is very important not only to choose a reliable partner, but also to secure yourself with contracts and agreements.

1.2. Additional costs in the beginning

Outsourcing is usually seen only as a cost-cutting measure, which is not entirely true. In fact, outsourcing logistics is very cost-effective in the long term, while setting up the system in the short term is an investment, which will pay off later.

1.3. Miscommunications

Even though 3pl are there to support the logistical operations of its customers, they may have a different understanding of how to work on certain issues. This kind of misunderstanding can have undesirable consequences for your business. A successful partnership with 3pl require straightforward communication and alignment of goals and strategies between both parties.

2. Advantages of Logistics Outsourcing

Now that we are done with negatives, let's take a look at some major benefits of logistics outsourcing to an external provider.

2.1. Optimization and cutting of costs

One of the greatest advantages of outsourcing is cost efficiency, which comes from the fact that almost all fixed costs of order processing can be eliminated. For example, renting or buying an entire warehouse and only using part of it, or hiring employees or freight forwarders and only using part of their services, is all a waste of money. By outsourcing to 3pl, on the other hand, the costs of warehousing, employees, tools, technology and the services of freight forwarders become variable costs. 3pl makes its warehouses available to multiple companies, optimizing warehousing costs. The company maintains beneficial partnerships with freight forwarders. By leveraging their expertise and technology, they are able to further reduce the cost of logistics operations. In the end, you only pay for what you actually need and use. So, an external logistics provider allows you to use your capital in the most productive way. Of course, this requires an investment at the beginning to get everything up and running. But it will more than pay off later.

2.2. Time-effectiveness and released resources

The more the company expands, the more complicated it becomes to manage logistics as the volume of orders increases. Without external help, it may even become unbearable at some point, and worse - business development may stagnate. That's why many choose to outsource logistics tasks. Handing over logistics to experts is a good way to free up a lot of time and resources. These can then be used more efficiently for the further development of the company.

2.3. Scalability and flexibility

Since 3pl offer their services and resources on a variable cost basis, outsourcing is highly adaptable and flexible. Clients can upgrade or downgrade at any time depending on their needs. This is a great advantage for the newcomers in e-commerce.

2.4. Latest technology and competence

Logistics service providers are considered experts in the logistics industry due to their vast experience and knowledge of the supply chain. This enables them to react quickly and act professionally even in the most difficult and unexpected situations. They have all the tools and the latest technology to improve and streamline logistics operations in the most productive way possible.

2.5. Control over operations

Outsourcing logistics does not mean that you are not involved in the process or have no idea what is happening with your inventory. The technology mentioned above allows you to monitor all orders and their processing in real time. And if you want, you can even communicate the current order status to your customers.

Conclusion: Advantages and Disadvantages of Outsourcing Logistics

Now that we discussed third party logistic advantages and disadvantages, we can clearly see that the advantages outweigh the disadvantages. The key is to choose the right partner, one you can rely on from the start and whose goals and strategies match yours.

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Julia Gordon

AuthorJulia Gordon

Head of the Fulfillment-Box Prep Centers network

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