There has been a significant rise in competition in the logistics service industry over the past decades with the logistics markets growing steadily. As competition in the emerging global economy continues to get higher, majority firms, particularly those involved in manufacturing and retailing are turning towards outsourcing logistics functions.
Most logistics firms consider outsourcing as a feasible business strategy, as they believe contracting out certain functions will help companies have full control over their resources. The major benefit of outsourcing warehousing and distribution operations is that companies will be in a better position to fully concentrate on vital issues and take steps to improve future growth of the organization.
In order to improve the overall image of the organization, it becomes increasingly important for firms to effectively manage logistics outsourcing relationships. Before proceeding on this topic, it is vital to know the meaning of logistics outsourcing.
The term outsourcing refers to a process when a firm contracts out some of its operations to a third party that works independently. Logistics firms resort to outsourcing in order to reduce costs and increase profit margins. Logistics outsourcing has gained immense importance today.
It is vital to maintain good relation between service providers and customers in order to boost logistics performance. Here are a few reasons about the importance of maintaining good relationships when outsourcing.
• Maintaining a good logistics outsourcing relationship is highly important for the success of any business. It is crucial for the competitiveness of a supply chain.
• Customer satisfaction and loyalty will only be achieved when service providers and customers maintain a good rapport.
• Service processes become mutually dependent and inhibited at times. This is one major reason for the importance of maintaining good relationship between service providers and customers in order to effectively co-ordinate service processes well.
Most of the logistics firms believe outsourcing their logistics and supply chain operations to third party logistics (3PL) will help in cost reduction and bring profitability in business. This belief holds true in the current economic scenario, where costs continue to rise. Non-core functions of organizations are being outsourced to improve competence and boost customer service.
Logistics firms try to maintain long-term relationships with 3PLs for better business. The relationship between logistics firms and 3PLs will remain good as long as the third party logistics providers meet the expectations of firms.
Once a logistics firm outsources some of its core operations to a 3PL, the third party logistics provider becomes an integral part of the business. The 3PL not only becomes an integral part of business, it also becomes an important part of customer operations. The 3PL becomes fully aware about the needs and wants of customers and manages to fulfill these needs by utilizing its own expertise. This helps relationship strengthen and grow further.
Prior to selecting firms for outsourcing, it is vital to fully understand business goals and settle on issues pertaining to company’s competence. At times the company you are outsourcing your business to, may not have good logistics functions such as warehousing and transportation. Keep this in mind before you plan to outsource certain operations to firms.