Any business working with tangible goods needs a logistics strategy. Logistics involves the warehousing and movement of goods to and from the company, as part of the supply chain or customer fulfillment. It is a critical element of successful operations. For many organizations, the decision to provide in-house fulfillment or contract through a third-party logistics (3PL) partner requires careful consideration. By answering these questions, supply chain and fulfillment managers can determine which route is the most appropriate for the business.
Which Services Are Required?
Logistics involves a range of services that companies may need to engage, whether they provide it independently or contract with 3PL. These services could include:
The types of services required greatly affects the number of third-party options, as well as the costs. For example, a business that produces frozen food products for restaurants would likely need proper facilities to store the food, transportation vehicles that can maintain ideal temperatures, and route optimization to ensure timely delivery. They might choose to provide all these services in-house, or contract with a frozen food fulfillment center.
What Are the Capital Expenditures and Ongoing Costs for Logistics?
With either choice, logistics takes money to operate. Companies looking to keep these services in-house should evaluate the capital expenditures they will encounter, such as:
- Purchase of vehicles
- Warehouse purchase or rentals
- Drivers on payroll
- Additional staff needed to pick and package shipments
- Structures for inventory organization
- Purchase, installation, and maintenance of logistics software
Contracting with 3PL may lower the initial costs of logistics but could increase ongoing expenses for services. Businesses may opt for a middle ground, such as maintaining warehouse space and hiring staff to prepare shipments but using 3PL for transportation.
What Are the Technological Requirements for Logistics?
Modern logistics relies heavily on software, including AI, to automate order processing and fulfillment. Companies must assess the requirements of software they plan to use for logistics and determine if they need process improvements for a successful integration. For third-party solutions, organizations should evaluate how easy it is to integrate with their current order fulfillment systems. For in-house arrangements, businesses may need to conduct a technical evaluation to determine if they need to streamline or upgrade the system to accommodate order processing, fulfillment, route optimization, supply chain management, and more.
How Much Customization Can the System Offer?
When companies think about what they want for logistics, they may come up with a list of custom services that must work with the goals they can realistically achieve. Many 3PL providers offer custom solutions for certain clients, but they may charge more for the flexibility and convenience.
For many businesses, the balance will come down to a comparison of the 3PL services available and the cost and complication of providing such services in-house. In-house logistics offers greater customization in theory, but the organization must actually have the resources to achieve the desired level of customization.
Can the System Scale for Growth?
Any logistics system must be effective for the long term to be a practical choice, which emphasizes the importance of scalability. While many 3PL solutions can handle the needs of organizations of virtually any volume, others have hard limits on their ability to warehouse or transport. In-house options can offer greater flexibility but require the company to be able to adapt to changing needs over time.
When vetting options, business stakeholders should confirm that the system can handle a gradual or sudden expansion without interrupting or delaying normal operations. This ongoing stability may require additional optimization of company systems, such as automating repetitive tasks or centralizing data management.
Choosing between third-party and in-house logistics is not a simple decision. The right choice requires an evaluation of resources available, service options, technological requirements, initial and ongoing costs, scalability, and customization. By considering each of these aspects, logistics teams can determine which route is the most sustainable for the long term.
About the author
Patrick Hannon is a Business Development Manager at Green Rabbit. He specializes in driving growth and strategic partnerships. Hannon is a seasoned professional in the cold chain logistics industry, with three years of experience.
