Third-Party Logistic - Essay Example

Third-Party Logistics Third-party Logistics Introduction The advancement in logistical solutions in businesses over the years has exhibited the importance of an effective logistics system in a business. Effective logistics has ensured that deliveries are made in time from businesses to businesses and from businesses to clients (Kersten, Blecker & Herstatt, 2007). Any business process always adds value to a business at a cost. If not effectively managed, logistics can be the reason for a breakdown in the business system as a whole. For this reason, several innovative ideas have arisen to ensure that the logistics system remains a valuable process to the business (Kersten, Blecker & Herstat, 2007). These innovations aim at particular units of logistics and the whole logistics system as a whole. These innovations include fleet management, supply-chain management, and intelligent transport system and third party logistics among others. This paper will be analyzing the impact of the third party logistics critically. This will include juxtaposing of research material and analyzing the available material and real life cases of the effects of third party logistics. Discussion Outsourcing transportation is always viewed as the best option for solving the logistical challenges of businesses. This looks like an easy task externally but it requires utmost coordination and review to ensure that the function achieves its optimum potentials without reducing the value of the business. According to Wisner, Tang and Leong (2011), the third party logistics come in very handy to ensure the supply chain is kept functioning and that all business links are kept serviced. These include distribution, warehousing, and sourcing of the raw materials. The third part logistics (3PL) is an innovation that has become an inevitable solution for companies. Studies show that the rate of dependency of the 3PL has grown over the years. This is because of the integration model that most 3PL providers include in their package ranging from inventory management, fleet management, and order processing, clearing and forwarding among other functions. This puts 3PL providers at the strategic intermediary position that cannot be bypassed by any business. This is very true because 3PL providers are of two categories. The asset based 3PL and the non-asset based 3PL.The latter provides consult services, brokerage, forwarder, marketing companies and information systems management services (Lamb, 2012). The former however provides the transportation and warehousing solutions to business. Both these 3PL act as either direct contractors or sub-contractors to the contracted Logistics Service Provider (Coyle, 2011). Advantages and Critics of 3PL The main advantage of acquiring 3PL services is the direct capital cost that can be avoided by outsourcing logistics. This means that businesses do not have to worry about the cost of acquiring modes of transport and managing the modes of transport (Lun, Lai & Cheng, 2010). Outsourcing logistics means that the company can concentrate on its core business without worrying about factors such as fleet maintenance and the extra costs of paying drivers, mechanics and even security for the vehicles. Another huge cost that a company avoids is the cost of parking the vehicles and coordinating the fleet and routines of the modes of transport. Coordination across the supply chain of a business is also an advantage of using the 3PL. Clearing processes and ensuring delivery of goods and services to the consumer and business partners is a time saving component that comes with the acquisition of 3PL services. This is because of the economies of scale that 3PL services come with making clearance faster than when using internal logistics. The downside of depending on outsourced for a business is however more risky than the advantages. Can the logistical contract that your business has hired represent the values of the business? This includes things like after sales services whereby the client is assisted with things like installation. If a company is contracted to deliver goods, they will not care about your customer because they have played their part of ensuring that the product has arrived to the owner. Outsourcing reduces the direct relationship between businesses and their clients. This is the most important factor that a business should avoid, losing touch with the client. Another crucial factor of analysis in the relationship between the business and the 3PL service provider is the risk sharing aspect. Mistakes from the business side might way in heavily on the 3PL service provider. This includes things like breakages and faulty goods. As much as the 3PL service provider might be careless in handling the businesses goods during transportation, the goods might also be of low quality. Upon delivery, goods might be found to be faulty and the cost of reverse logistics will be transferred to the 3PL. The cost of the damaged good might also be unfairly transferred to the 3PL even though the goods were of poor quality. Another example is the logistics requiring refrigeration. If goods were almost becoming stale before transportation, they will arrive stale in their destination. Without proper investigation, the 3PL might be blamed for the mistake. The spread of risk is a benefit that cannot be overlooked. This is because 3PLs can subcontract to further spread the risk, but by doing this they are risking the quality of the business. This will mean that information is shared across the three or more entities, which is cumbersome and costly. The companies might also need to build distribution centers to enhance coordination between the subcontracted 3PLs (Zanjirani et al., 2011). It can, therefore, be said that outsourcing is the definitive way to go managing a business logistics. Although it requires very competitive sourcing for capable and reliable Logistics Service Providers, the use of 3PL has proven to be a cost effective way of handling business logistics. Despite the challenge and threat it pauses to a business in terms of customer care and after sales service, the use of 3PL will continue to grow substantially over the years. Previous studies have shown exponential growth in the logistics industry. Some of the studies include “Third –Party Logistics results and findings of 2003 Eighth annual study” and the 2014 Third-Party Logistics Study, The state of the Logistics Outsourcing. Conclusion As much as businesses have come to depend on outsourcing logistics so as to reduce capital costs, businesses are overlooking the most important aspect of their relationship with their customers. With the constant evolution of effective logistical service provision, it can be said that in the near future, a product containing customer care and the strategic goals of a business will be included as part of the logistical package provided by third party logistical service providers (Levesque, 2011). References Coyle, J. J. (2011). Transportation: A supply chain perspective. Australia: South-Western Cengage Learning. Kersten, W., Blecker, T., & Herstatt, C. (2007). Innovative logistics management: Competitive advantages through new processes and services. Berlin: Erich Schmidt Verlag. Lamb, C. W. (2012). Marketing. Toronto: Nelson Education. Levesque, P. J. (2011). The shipping point: The rise of China and the future of retail supply chain management. Singapore: Wiley. Lun, Y. H. V., Lai, K., & Cheng, T. C. E. (2010). Shipping and logistics management. New York: Springer. Wisner, J. D., Tan, K.-C., & Leong, G. K. (2011). Principles of supply chain management: A balanced approach. Mason, OH: South-Western. Zanjirani, F. R., Rezapour, S., & Kardar, L. (2011). Logistics operations and management: Concepts and models. London: Elsevier Read More