Question

Q. Analyze critically that under what circumstances might a company want to use Supply Chain Services in Logistics Management from a third party?                                                                                                                           

                                                                                                                                

    Although it largely depends on students creativity but answer KEY points should be included:

ships small packages occasionally

cost of shipment

delivery time

package pick-up time

customer preference

price of good and reliability of the carrier

dependability

Answer 1

Supply chain in Logistics in itself is often not a primary business focus for a lot of companies. As any company grows, its logistics requirements also substantially increases. At some point it is often no longer cost efficient to continue fulfilling your logistics needs and therefore continuing with an in-house supply chain in logistics is often challenging and tedious.

Example: If you are a consumer goods company, making a great product is not enough if it is not reaching the consumer in the required way.

To start with a company must financially and operationally assess whether managing their own logistics is cost effective or not. Also, they should identify bottlenecks and challenges that they currently face while also looking at Quality control issues. Below are few of the vital parameters that a company must look into before considering their decision of using third party logistics (3PL):

Cost of Shipment: As providing a seamless service is the main business focus of 3PL, they provide lower transportation rates beacuse of the optimization they can achieve due to their Economies of Scale (EOS). Besides these 3PL would quite naturally have worked towards maximing their logistical efficiency by various means of technology in terms of using mathematical modelling and algorithms and building up requisite infrastructure. Therefore, their rates are quite attractive specially for smaller business and other businesses too for whom building an in house logistics arm is often a financial hiccup.

Delivery Time: The infrastructure and time efficiency capabilities of these 3PL substantially reduces the delivery time. Also, there are service levels that they have to adhere to based on the contract finalized.

Customer Preference: 3PL are extremely customer centric and are work in accordance to what suits their customers the best. Their services also continuosly improve based on their historical logistical data.

Dependancy/Reliability : It is critical to understand that handing over logistics to 3PL comes with a great deal of dependancy and also commitment. Any issue arising at 3PL end can substantially impact logistical downtime which again translates into added cost apart from other operational issues. If the service levels and cost effectiveness of 3PL is not as expected, often companies are put into uncomfortable situations as changing 3PL provider is easier said than done even if numerous options are available. Therefore, careful analysis needs to done to choose a reliable 3PL provider as the magnitude of dependancy is huge.

Quantity of Shipment: The Economies of Scale and logistical efficiency make it feasible to ship varying shipment sizes without substantial variations in cost and delivery time.

Loss of Control: The major deterrent for any company while handing over their logistics operation is the loss of control. The choice puts a 3PL in control of a crucial operational aspect which directly impacts customer service levels and customer satisfaction. Also, the in-house team loses substantial logistics knowledge when 3PL is used which makes changing 3PL or building their own capacity difficult at a later stage.

An interesting fact to know is that in the short term often 3PL looks more attractive but in the longer term handling the logistics in-house is more profitable provided the right operational efficiency is achieved.

To sum it all up, clearly the handing over of logistics to 3PL comes with its pros and cons. The right decision will depend on a company's business needs and desired efficiency.