How outsourcing in logistics works and what companies should pay attention to it

• What is logistics outsourcing?
• Pros and cons of logistics process outsourcing
• Advantages of outsourcing logistics to 3PL provider
• Logistics outsourcing disadvantages
• Main types of outsourcing logistics services
• What companies should try warehouse outsourcing services?
• Frequently asked questions about 3PL logistics
• Conclusions: logistics outsourcing development in the Ukrainian market

Outsourcing in business is used for different purposes. This method can optimize the cost of non-core activities and improve their quality. Logistics is a part of the company’s activities, which can be delegated to third-party companies. And since the eCommerce segment has been actively developing and companies increasing their turnover, 3PL services are in demand. 

In this article, we explain all the benefits and “pitfalls” of logistics outsourcing, what services 3PLs can provide, and which businesses should delegate their logistics to professionals.

What is logistics outsourcing?

Logistics outsourcing is a complete or partial transferring of logistics tasks to a third-party company. It is also called “contract logistics” or 3PL logistics, which also means the involvement of outsourcers to perform logistics functions. The logistics outsourcing development in Ukraine began in the 1990s. At that time, outsourcing of logistics included only basic services such as freight transportation, storage, etc.

Now logistics providers offer their services according to world standards and practices. A 3PL provides a rented or own class A or B warehouse. The high-class warehouses are equipped with modern warehousing, accounting, and processing systems. In addition, in such warehouses operate skilled workers and specialists who effectively manage clients’ business processes. The main advantage of outsourcing logistics is that an entrepreneur does not have to maintain a warehouse, buy equipment, and hire staff. A company can simply order needed services and pay a provider when they are performed. 

Outsourcing is used by small companies to scale, and by large companies to maximize process efficiency. Logistics providers focus on high results, they work for reputation. A long-term service level agreement is signed with many customers. According to this contract, a provider assumes all responsibility, financial risks, losses, or damages. The contract also prescribes penalties for failure to meet delivery deadlines.

Pros and cons of logistics process outsourcing

Like any business solution, logistics outsourcing has its peculiarities. So, before deciding to outsource logistics, it is necessary to weigh the pros and cons.

Advantages of outsourcing logistics to 3PL provider

• Quality solution of logistics issues. However, it is believed that the main advantage of outsourcing is cost reduction, the high quality of the performed services is the strongest argument for logistics outsourcing. 
• Logistics costs reduction. This is the second most important advantage of logistics outsourcing. A company does not pay for warehouse rental, does not establish a logistics department and pays salaries, does not invest in equipment and consumables. It uses the logistics provider’s resources and gets needed services in the required amount.
• Possibility to focus on your core activity. If a company spends a lot of time on non-core tasks, it can lose control of more important issues. There is no time to analyze the market, promote, create and release new products. Logistics outsourcing frees time up for more important and profitable activities and improves business efficiency and profitability.

• Strengthening competitive position. Logistics services allow improving customer care, which is an important competitive advantage. Goods will be delivered on time and in required amounts, even in the peak season. At the same time, a business does not need to make additional efforts.
• Possibility to get some experts. Not every company can afford to create a logistics department and hire well-qualified specialists in this field. However, by applying logistics providers, a business can use the expertise of professionals and the best technologies to solve its logistics issues. If your employees do not have experience in logistics, it is worth transferring it to experts. 3PLs are also responsible for the provided services.

Logistics outsourcing disadvantages

• Loss of control. It is the main disadvantage of any outsourcing. Therefore, it is necessary to select a logistics provider responsibly, so that the quality of performed services and time frame meet customers’ expectations.
• Risk of important information leak. When a company transfers confidential information to a third-party contractor, it should understand that there is always a risk of information leakage. Therefore, as in the first case, it is important to choose a reliable logistics partner. 
• Low quality of services. Since the logistics outsourcing market in Ukraine is still developing, a company may not find an appropriate service for all its needs. In this case, a business should organize its logistics independently, as low-quality logistics services can harm the company’s image and customer retention.
• Need to pay additional fees. While outsourcing is attractive for most companies because of its affordable price, there may be “pitfalls” in comparison to in-house logistics development. For example, a logistics provider can specify some additional payment in the contract terms in small print. To avoid such a situation, it is necessary to conclude the contract with the logistics provider responsibly.
• Dependence on 3PL services. A company refuses any part of its business processes, it can depend on the performer of this function.

Main types of outsourcing logistics services

3PLs provide logistics outsourcing services. They may specialize in specific logistics services or a range of different services. They have the resources and experience to organize the customer’s logistics most efficiently. The contractors use an integrated approach to the client’s logistics challenges performance and can additionally offer accompanying documents and insurance processing, handling operations, call center services, etc.

Logistics services can be divided into five groups:

• Freight forwarding and transportation services. They are the most popular logistics outsourcing services in Ukraine. These services may also be provided separately. If a company has a department that is responsible for forwarding, it applies the provider only for freight transportation and prepares accompanying documentation itself. 
• Customs clearance services. Since the processing of freight under customs control has its specificities, many companies outsource it. A provider is aware of all the details of working with the customs authorities, knows existing legislation, pays all customs fees. In case of problems with freight declaration at customs, a logistics company assumes all responsibility.
• Warehouse logistics services. Modern warehouses are not just storage facilities. These are complexes that have all the necessary equipment and are automated for the most efficient operation. A logistics provider invests in a warehouse and trained personnel, and a customer pays only for the service he needs. With the eCommerce segment growth, demand for high-quality warehouses also increases, and now providers offer a wide range of warehouse services.
• Supply logistics services. Retail networks, which have many branches, outsource supply processes coordination, search for suppliers, and necessary stock level maintenance. This is a resource-consuming part of business management, and by outsourcing it, a business gets the most efficient way of these processes organization.
• Integrated logistics services. A 3PL has all the necessary resources to organize the entire product life-cycle, from production to consumption. By transferring these business processes to a contractor, a company can be confident that the entire supply algorithm will be fulfilled correctly and its product will be delivered to an end customer.

What companies should try warehouse outsourcing services? 

If you read all features, pros, and cons of logistics outsourcing and decide to try a specific service, we offer you to get acquainted with the list of popular logistics services on WareTeka. You can follow a link in the service name to learn more about each of them. In the table below, you can read a brief description of each service and a list of companies which should try it.

In addition to outsourced warehouse logistics services, WareTeka also offers transportation services. On our website, you can get acquainted with the approximate cost of freight delivery to different cities of Ukraine and order LTL transportation service. It can be useful for different companies, the only condition: the freight is transported only on pallets.

Frequently asked questions about 3PL logistics

Conclusions: logistics outsourcing development in the Ukrainian market

Eventually, all companies realize the necessity of logistics experts in their business processes. However, it is not always reasonable to invest in in-house logistics: the costs will be considerable, and the result may be below the expectations. Warehouse rental costs, payment for utility services, staff salaries equipment maintenance are increasing, so managers conclude that outsourcing is a much more profitable solution. Therefore, companies outsource these tasks to a 3PL provider and pay only for the necessary service.

The Ukrainian business attitude to logistics outsourcing changes as the market develops, especially against the backdrop of periodic crises. However, customers outsource their logistics partners complex and responsible functions. For different types of companies that operate with products, logistics outsourcing will be a great choice. It is profitable and efficient. A logistics provider has the experience, means, and the best infrastructure to perform the required operations. If a business chooses an appropriate 3PL provider, it gets a guaranteed result.