Third Party Logistics Advantages and Disadvantages

Do you need to find a third party logistics company? Third party logistics companies are an important part of the supply chain. There are many third party logistics advantages and disadvantages. Third parties provide warehousing, transportation, and distribution services. They also specialize in businesses that don’t have their own facilities or staff. These companies can be used by manufacturers, retailers, wholesalers, and distributors.

There are many advantages to using third party logistics providers. These include cost savings on labor costs, increased efficiency in warehouse operations, and reduced inventory levels. Yet, there are also disadvantages, such as a higher risk of theft. Also, a lack of security personnel at warehouses causes higher risks. Less control over shipping schedules is also a problem. And the lack of control leads to reliance on other carriers like UPS or FedEx.

Read below to understand all the third party logistics advantages and disadvantages for businesses.

Third Party Logistics Advantages and Disadvantages

Using a third party logistics provider helps your company outsource. This is often one of the most difficult parts of a business. Using a third party can help you scale faster and ship more efficiently. Here are all the advantages of using a third party logistic service.

Reduce Operational Expenses

Third party logistics warehouse providers like air freight and sea freight are more advanced. Especially compared to small shipping companies or car-based couriers. Most third party service providers use technology to organize the inventory of their customer’s products. This helps them transport products more accurately compared to their customers. This means you know your product is going to reach its destination when it’s supposed to. Operations that are reliable have fewer missteps, so you will enjoy lower operational costs for your business.

Reduce the Burden on Your Business

There’s a major reason businesses use third party companies to help with shipping. Larger companies have a tougher time trying to keep up. Allow your third party company to handle specialized parts of your business. Your transportation process can be better handled by professionals. It allows you to focus on one job, which in turn frees up your time and resources. Also, business owners are wary of outsourcing work. Entrepreneurs are hesitant to lose control and become too dependent on others. Yet, doing nothing can cause problems over time. By outsourcing, you’re giving yourself a solution to your problems.

Efficient Operations

Third party logistics companies are often focused on customer service. The companies offer innovative new solutions to the shipping process. These new solutions allow them to keep a competitive edge in their industry. And the companies can lower costs at the same time.

Awareness of embedded data gives third parties better abilities as well. Issues like theft or fraudulent activities are better monitored by third parties than by in-house teams. Furthermore, being outside of an established department provides better insights. Third parties’ processes might improve companywide issues and ensures more accuracy. Research methods receive a fresh perspective about what works and what doesn’t. The methods don’t have a bias towards staying within established standards.  

Highly Scalable

Many third party logistics companies offer a service for one sector of the supply chain. This allows the company to better focus on what they do best. Some third party companies operate in a specific country or a particular geographic area. Outsourcing using third party logistics makes it easier for startups to service those areas. Startups are able to grow and scale at their own pace without adding more overhead. This way, startups often don’t need to manage over-the-road shipping. Startups also don’t need to worry about warehousing when using a third party. Outsourcing these aspects of the business makes sense and saves money in the long run. 

Disadvantages of Using Third Party Logistics

A third party logistic provider can help you focus on scaling your business. However, that doesn’t mean your situation will be perfect. Be aware of the disadvantages of using third parties when making your decisions.

Miscommunication Errors

Third party logistics companies are there to offer more support for logistical needs. They might, however, have different ideas on how to fulfill these requirements. These ideas can be different from what you and your employees might be used to. This may lead your team to experience miscommunication errors and unexpected results.

You always need to take into consideration your third party logistics company’s goals. Check in with your business goals to see if the relationship will be successful. Third party providers who charge based on a per-shipment basis will have more flexibility. Those who require payment up-front or at minimum service level commitments are strict. Select a provider that matches a pricing model with yours. Smooth communication will allow both of you the ability to operate efficiently and retain the relationship.

Dependent On Third Party

Use third party logistics companies when distribution centers are far away from each other. For example, let’s say a company is in China, and it sells all across North America. In this case, it would make sense to use third parties because all their inventory can be centrally located at one warehouse, instead of a set amount spread across countless warehouses.

What that means is that you give up direct control over the transportation of goods. You also give up the efficiency with which they’re transported. This will increase your dependence on outside vendors. There are certain responsibilities transferred when deciding not to handle logistics in-house.

Relying On Third Party Reputation

Third party logistics companies often have a different set of priorities and pressures. Third parties take on risks that the company might not be comfortable with. The fiduciary responsibility of the third party providers is dictated by their shareholders’ return on investment. This may or may not align with the best interests of your company.

It is always important for you to vet your third party provider’s reputation. Especially before you commit to trusting them with your business objectives. A good way of mitigating this risk is by relying on companies that have an established record. See if they have a reputation for providing quality logistics service. These carriers usually manage their reputation very carefully for when times get tough. At other suppliers’ facilities, they know they are likely to become more desirable. Customers look for “safe harbors” from their supply chain.

Using Third Party Logistic Companies

Keep in mind all of the third party logistics advantages and disadvantages. What’s important is to go with a 3PL service that is trusted and has a great reputation in the industry. It’s hard to find a company on the east coast you can trust with logistics. Especially one that specializes in contract and warehouse work. Contact Quality Warehouse to get an extension of your brand.