LOGISTICS
In 4PL , meanwhile , all assets are subcontracted , meaning that the business buys capacity on the market as it is required . This can lead to cost benefits , as the outsourcer does not carry the same fixed costs as operating in a 3PL environment , but they are more exposed to the market forces that impact pricing , and with current capacity constraints , this could result in increased costs .
With supply chain volatility being what it is , and with a constrained supply of labour – particularly drivers – we are seeing a greater focus on 3PL than 4PL , because they are geared towards asset ownership .
What are the main benefits of outsourcing logistics ? ML & TW :
• Leveraging a 3PL ’ s scale and broader experience to bring flexible capacity and establish best practice
• Using a 3PL to invest in a supply chain using their cash that is recovered through a contract
• Accessing a network of capability across a region , or globally
• Using a specialist provider to operate what is often seen as a non-core area of a business
• Incentivising a logistics provider to improve performance and then rewarding them based on results
And the most common problems ? ML & TW :
• Tendering . The specification of the operation being outsourced needs to be accurate to allow the 3PL to prepare a robust response and price that reflects the operation . If this is not done correctly at the start of the project , then capacity challenges and poor operational performance can follow .
• Contracting . This needs to be done in a way that provides the 3PL with appropriate incentives to drive performance , but not so that it is too onerous in dishing out penalties . The 3PL needs to be able to see a path to earning a reasonable margin in order to maintain focus and receive the management attention it needs . For 3PLs , areas such as attractive payment terms often have higher value than outright management fees , given the nature of expenditure for running contracts .
74 September 2022