Why Would a 3PL Capable Company Turn Toward Supply Chain Outsourcing?

Outsourcing to a Third-Party Logistics Provider

Why would a company that already excels in supply chain outsourcing turn to a third-party logistics provider for help?

As one of the more common questions that come about when discussing supply chain logistics, it’s important to understand why any company, large or small, would choose supply chain outsourcing in the first place.

We recently got a chance to address this very question in an installment of our video series with Talking Logistics called “Should You Outsource Core Competencies?”

In this four-minute video (above), Mike Glodziak, president of LEGACY Supply Chain Services, gives his take on why outsourcing has become a popular core competency for some of North America’s largest retailers. While the ultimate core competency for these companies has everything do with retailing, Glodziak insists on another area of expertise involves supply chain outsourcing.

According to Glodziak, the reasons companies that are already good at supply chain decide to outsource include:

Cost
Flexibility
Capital Investment
Improve Service Levels

A company that elects to utilize supply chain outsourcing is essentially choosing as a business strategy to partner with outside resources to perform activities that are traditionally handled solely by internal staff and resources.

These activities include transportation, distribution, warehousing, and optimization of inventory.

The reality is that some of the biggest companies in North America - those big enough to handle supply chain logistics internally - choose supply chain outsourcing. The partners are allowed to do what they each do best, and collectively it drives value in the supply chain.

Take for example this 2013 article posted on the Supply Chain Blog on CandianGrocer.com in which the writer explains why retail grocers are relying less on internal distribution and warehousing and more on 3PL services like outsourced warehousing.

“Like most other industries, truck drivers are beginning to retire in increasing numbers. It is becoming more difficult for some grocery companies to recruit replacement drivers. The result is that these companies are having to become more creative about how they leverage third-party carriers to offload work that has traditionally been performed by in-house drivers.”

And it doesn’t mean this company isn’t capable of handling the transportation itself. Other reasons mentioned in the article include flexibility, versatility, asset reduction and labor management.

The point is that the days of outsourcing non-core activities are no longer. Companies that may be perfectly capable of handling the transportation or warehousing of their goods are in fact making strategic decisions to turn toward supply chain outsourcing as a way to adapt. Or as Lora Cecere so eloquently states in her recent post 5 Steps of Supply Chain Outsourcing:

“Today, supply chain outsourcing is a reality. Companies are dependent on each other”

LEGACY Supply Chain Services has been an outsourced logistics partner to our clients for nearly 40 years. We believe supply chain outsourcing in and of itself could be considered a core competency - meaning there are in fact some companies that specialize in outsourcing some or all of its supply chain needs.

We recognize that the decision to outsource is heavily dependent upon whether a company is trying to reign in costs, provide some flexibility in the supply chain, or simply improve service levels.