The demand for greater operational efficiency along with enhanced service levels from business customers, and the desire amongst consumers for greater levels of convenience, are driving improvements in the quality of logistics operations. Indeed, improving the quality of logistics operations could be the source of major competitive advantage for many organisations.
Outsourcing
In order to improve logistical operations, many organisations outsource activities to a third party logistics provider (3PL). This can result in major improvements as it provides access to industry leading expertise in logistics and the latest logistics technology. Importantly, a 3PL can identify synergies with its other customers and pool its resources to achieve greater economies of scale resulting in lower costs and greater efficiencies. However, relationships with 3PL’s must be carefully managed through effective contracting to ensure control is delegated but not lost to the 3PL, and to ensure the 3PL operates in the interests of the organisation.
Table 1 identifies the potential advantages and disadvantages of outsourcing logistics operations.
| Advantages | Disadvantages |
|---|---|
| Cost reduction | Loss of control |
| Improved efficiency and service levels achieved through greater economies of scale | Increase distance from customers and suppliers resulting in loss of personal touch |
| Allows focus on core competencies | Negative impact on in-house workforce |
| Access to leading expertise | Conflicting objectives |
| Access to latest technology without capital investment | |
| Free up resources | |
| Risk sharing |
Table 1: Advantages and disadvantages of outsourcing