Module 4 – Chapter 15

LOGISTICS OUTSOURCING
 THIRD PARTY LOGISTICS SERVICE PROVIDER
 3PL is a firm that provides specialized logistical services to its customers –
transportation, warehousing etc.
 They own the logistical infrastructure of their own functional area
 Specialize in their own functional areas
 Outsourced work – work entrusted by the customers
 Narrow approach – focuses on one or more function of the supply chain
 Implementation & execution of activities

Standard • Basic activities – picking, packing, warehousing, distributing etc.

Service
Provider

Service
• Performs value added services – tracking, tracing, cross-docking, specific packaging etc.
Developer

• Comes at request of the customer

Customer • Takes over complete logistics of the firm
Adapter

• Highest level of 3PL

Customer • Integrates with the company & takes over entire logistics operation
Developer

NOTE: for advantages of 3PL refer to the advantages of outsourcing answer (slide 4)
 OBJECTIVES OF OUTSOURCING

 Outsourcing can be defined as contracting of one or more of company’s business processes/activities to outside service
providers in order to reduce the overall operating costs & focusing on core competencies.
 It is also about transferring the repetitive & non-critical activities to outside parties & focusing on core competent functions

• Reducing/Controlling Operating costs

• Improving company focus

• Using internal resources for other purposes

• Improves flexibility
• Improves financial ratios
• Improves overall operating performance
• Sharing risks with partner company
• Reduce major investments & avoid financial risks
Best IT Outsourcing Companies in the UK
 BENEFITS/ADVANTAGES OF OUTSOURCING

SWIFTNESS & CONCENTRAT REDUCED RISK STAFFING 24-7 BUSINESS SAVE ON INCREASED
EXPERTISE E ON CORE OPERATIONA SHARING LEVELS Offshore INFRASTRUCT EFFICIENCY
Outsourced ACTIVITIES L& Certain Outsourcing outsourcing to a URE & Workload will be
vendors have Companies RECRUITMEN components of helps to reduce country like TECHNOLOGY shared between
specific outsource to T COSTS the business the headcount or India, which is on Eliminates the employees &
equipment & eliminate Primary process & certain minimize the a different time need for outsourced
technical distractions & advantage of responsibilities fluctuations in zone, gives investment in partners which
expertise which force themselves outsourcing is are shifted to the staffing. advantage of infrastructure as will increase
helps to finish to concentrate on that it eliminates outsourced Also reduces making full use the outsourcing efficiency of
task faster & their core the need to hire vendor. workload of of 24 hour day. partner takes the internal
better quality. competencies. employees in- employees. responsibility of employees.
house. the process
 FOURTH PARTY LOGISTICS SERVICE PROVIDER

 4PL is a consultancy firm that acts as a link between 3PL & the
client
 Do not own any logistical infrastructure
 Not actual performers of logistical activities. Only arrange &
assemble
 Broader approach – focuses on all functions in supply chain
 Focuses on planning & designing of activities
 Also known as Lead Logistics provider
 Basically a supply chain integrator that manages the resources,
capabilities and technologies of its own organization with those of
complementary service providers to deliver complete supply chain
solution

NOTE: for advantages of 4PL refer to the advantages of outsourcing answer (slide 4)
 DRAWBACKS OF OUTSOURCING
• When company
outsources to outside
service providers,
management & control
gets transferred to the
outside service providers.
LOSS OF
MANAGERIAL
CONTROL
• Since the contract will fix
the price, the only way to
increase profit will be to
decrease expenses. This
may affect the quality.
QUALITY
PROBLEMS
• Although outsourcing is a
cost effective activity, it
may have few hidden
costs, such as legal costs
incurred while signing a
contract between
companies.
HIDDEN COSTS
• If the outsourced company
faces any risk such as
bankruptcy, financial
losses etc. it may affect
the performance of the
country.
TIED TO
FINANCIAL WELL
BEING OF
ANOTHER
COMPANY
• One of the biggest
disadvantages of
outsourcing is the risk of
losing sensitive data & the
loss of confidentiality.
THREAT TO
SECURITY &
CONFIDENTIALITY
• Goodwill of the company
may get affected if the
outsourced company does
not perform well.
BAD PUBLICITY &
ILL-WILL
 SELECTION OF LOGISTICS SERVICE PROVIDER

SEARCHING FOR
• Problem may be IDENTIFYING POTENTIAL SERVICE
• Factors taken into
related to increased PROBLEM AREAS • Reducing & PROVIDERS &
consideration for
controlling operating ACCEPTING
expenditure on
PTROPOSAL selection may be –
logistical activities, cost logistical
longer order • Area of problem may • Improve customer infrastructure,
processing time, delay be transportation, service • Search for service providers to experience, customer
in delivery of goods warehousing, • Focus on core whom company’s business base, technology, cost
etc. materials handling etc. functions processes can be outsourced. of services etc.
• Should accept proposals from EVALUATION OF
DEFINING potential service providers
ESTABLISHING PROPOSALS &
LOGISTICAL
PROBLEM OBJECTIVES OF SELECTION OF
OUTSOURCING SERVICE PROVIDER