Global and regional road and rail freight logistics have become more challenging over the last two years for more reasons than just the COVID pandemic. The fallout from Brexit, shortage of HGV drivers, port congestion and e-commerce have all contributed to the increased complexity. Managing transport logistics in-house requires specialist expertise, equipment and technology which is beyond the reach of most shippers: it also detracts from the core business.
It is the norm for large manufacturers and FMCG distributors to use one or more external outsource logistics companies to manage and optimise their transportation. A third-party logistics (3PL) provider can perform one or more of the essential functions of distribution but increasingly, fourth-party logistics (4PL) companies are providing a single one-stop solution, typically involving many carriers.
Five Benefits of Outsourcing Freight Transport
- Economies of Scale
Cost-saving is a top priority in all organisations. 3PLs with an established customer base can provide economies of scale because their significant buying power makes their pricing very competitive. 3PL and 4PL companies that have freight logistics as their core business is equipped to offer competitive rates through better planning. Volume price negotiations and the application of the latest technologies. Outsourcing transport means less investment in expensive equipment, space, systems, employees and security.
- Technology and Communication
Established 3PLs are investing heavily in cloud-based software solutions, both on and off the vehicle for the benefit of their customers. Transport Management Systems (TMS) are now more affordable and accessible. Their features include routing and scheduling, order management and driver tracking. Mobile technology is used to provide real-time communications as well as support track-and-trace and safety and security tools.
- Information Management
Real-time accurate and trustworthy information on order status is essential for every customer. Data that is incomplete, out-of-date or error-ridden means late deliveries, lost items, irate customers and additional costs. Most TMS systems include both fleet management and customer management modules that produce accurate reports and business intelligence in real-time at a level of detail that is impossible to achieve manually.
- Resource Flexibility
In-sourcing, i.e., managing your own transport in-house comes with challenges in staffing and vehicle utilisation. Repeated scheduled deliveries can be managed but what about being responsive to unplanned demand? Seasonal fluctuations, urgent orders and the need to operate 24/7 create additional costs that an outsource solution can absorb more easily. 3PLs have the necessary expertise, personnel, equipment and facilities that are often beyond the budget of individual shippers.
- Customer Service
The pressure to perform on-time-in-full (OTIF) deliveries, especially in FMCG businesses, is not slowing down. Pressure from end-consumers for same-day deliveries and the increase in returns also means that every shipper needs to focus on customer satisfaction. An experienced 3PL can deal with fast and accurate delivery through reliable and visible information.
“Logistics outsourcing to third-party logistics providers (3PLs) has been on the rise for a while and there is no indication that this will change anytime soon. However, logistics leaders are grappling with significant challenges that they can only address in collaboration with their 3PL partners.”
David Gonzalez, Gartner
Key to Success in Outsourcing Freight Logistics
Time and effort must be invested in developing and maintaining a good working relationship with the chosen outsource supplier. Your chosen 3PL outsource company may have ways of working that do not easily fit your behavioural style or culture and both parties must adapt. Both parties must listen to each other and understand the differences in perspective. For example, shippers must ensure that they have a clear understanding of the 3PLs’ capabilities and needs. Similarly, 3PLs must carefully listen to their shippers to manage expectations and identify future areas of opportunity.
Key Performance Indicators (KPIs) and Performance Scorecards
Monitoring Key Performance Indicators (KPIs) and efficient financial reporting tools can bring immediate visibility to how successful the outsource transport service provider is in managing your deliveries. These are examples of possible KPIs:
- On-time vehicle availability. How often does the 3PL arrive within the required time window and load/leave on time?
- On-time delivery to customers – what is the incidence of late deliveries?
- Number of claims per month, or claims as a percentage of freight cost
- Administration accuracy – % of error-free invoices or goods received documents
Data Visibility is the Key
One of the biggest challenges in transport logistics is to have access to real-time accurate information. Visibility across the transport network is the basis for superior performance in 3PL logistics. The key to OTIF’s success is the efficient exchange of information in real time through harnessing the right technologies.
Running your own transport logistics can be a distraction and an unnecessary complication when you should be focusing on servicing your customers. Outsourcing to an organisation with specialised logistics experience allows you to focus more on getting your product to market more quickly and driving revenue. Treat your outsourced 3PL as a business partner for the best results.