Companies of all sizes, across all industries, are experiencing complex supply chains with an accelerated rise in e-commerce, globalization and new technology. As a result, more and more businesses are outsourcing their logistics operations—hiring an external provider to handle various supply chain tasks associated with the storing and moving of goods—to improve operational efficiency and optimize success.
The advantages of outsourcing logistics are numerous. But more than anything, outsourcing logistics allows companies to free up resources and focus on their core competencies. Most companies simply can’t acquire all the resources needed across every function to run an entire supply chain operation effectively in-house. For this reason, many companies will outsource non-core functions such as distribution, fulfillment, transportation, call center and human resources activities. On the other hand, anything that an organization needs to tightly control or do very well, such as R&D, would remain in-house.
Why Outsourcing Logistics Can Be Such an Effective Business Strategy
All companies are different and the benefits gained from outsourcing logistics depend heavily on the circumstances surrounding a business and its supply chain. That being said, handing off logistics to an external service provider will help most companies:
Access Specialized Expertise: A major advantage of outsourcing logistics is that it provides access to specialized expertise that may not be available from your internal staff. For example, if your business is inexperienced or unfamiliar with international shipping regulations or customs clearance procedures, you’ll benefit greatly from a knowledgeable third-party logistics (3PL) provider who has experience dealing with these types of issues. A provider with this level of expertise will help ensure that your business is compliant with local laws while also improving efficiency within your supply chain.
Improve Transportation Efficiency: The majority of companies lack the resources and/or expertise to manage transportation efficiently. By outsourcing your transportation, you can significantly reduce overhead costs while still ensuring access to reliable transportation services. You’ll also gain access to a variety of transportation modes that may not be cost-effective for you to procure on your own.
Lower Costs by Enhancing Operational Effectiveness: External logistics providers can often perform most supply chain functions better, faster and more cost effectively than your internal staff. These logistics experts use cutting-edge technologies, such as transportation management systems (TMS) and warehouse management systems (WMS), to optimize inventory levels and deliver the experience customers are expecting you to provide. By increasing inventory accuracy, shortening order cycle times, reducing transportation costs and enhancing warehouse space utilization, these technologies can deliver cost efficiency and operational excellence.
Simplify Expansion Into New Markets: Developing an effective supply chain when expanding sales into new geographies can be a significant challenge. Outsourcing your logistics to a partner that specializes in logistics in your new market can simplify the process considerably.
Access New Technology and Best Practices: The logistics industry is a field that’s always changing with respect to technology, trends and best practices. The tricky part is finding ways to integrate them into your existing business model while also continuing to meet customer expectations. Outsourcing can help your company exploit technology to improve supply chain efficiency, as many logistics providers have invested in advanced technologies such as process automation, machine learning and artificial intelligence. These can be used to streamline warehouse and transportation operations and reduce errors to better serve your customers.
Elevate the Customer Experience: When you consider all the choices that are available across any given market, it only takes one bad experience to lose a customer to your competition. This is why outsourcing logistics can be such a valuable solution. When you outsource transportation, for example, you benefit from the expertise of a company whose entire business is built around logistics. It’s what they do. As a result, they have the ability to deliver shipments quickly and reliably every time—which will help bring your customers back, again and again.
Enable Employees to do What They do Best: This benefit is so valuable to an organization, it’s worth mentioning again, but in greater detail. Outsourcing logistics helps businesses focus more on their core competencies rather than spending time managing complex supply chain processes. This enables you to devote more resources towards developing innovative products or services to help your company focus on the big picture—and reach its full potential.
The Emergence of Nearshoring
Traditional outsourcing in manufacturing, in the form of contract manufacturing, has often involved countries with lower labor rates, such as China, India, Vietnam and the Philippines. However, a growing number of companies are shifting towards nearshoring, which involves a business outsourcing some or all of its supply chain operations, including manufacturing, to nearby countries—typically with a shared border within the same time zone.
While global supply chains often require long lead times and incur high costs associated with transporting goods, nearshoring shortens the supply chain, resulting in faster time-to-market, lower costs and fewer problems with export logistics. Nearshoring can also help companies by improving communication and collaboration with partners while providing greater flexibility in response to disruption.
The Time Is Right for Outsourcing Logistics
In an ever-changing global marketplace, successfully navigating the complexities of supply chain management has never been more difficult—and more important. When you consider the numerous benefits of outsourcing supply chain and logistics, however, it’s easy to see how this strategy can provide the competitive edge that businesses need to stay ahead of the curve. With the right approach—and the right logistics partner—outsourcing can transform your supply chain and help you achieve new levels of success in 2024 and beyond.
Jagan Reddy is managing partner for Netlogistik US, an integrator of Blue Yonder WMS and TMS solutions.
