Let's Just Outsource the Service!

Nancy Anderson
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Third party logistics (3PL) and contract manufacturing reinforces the argument to “focus on core competencies.” The providers have overcome their stigma of over promising and under delivering and now provide significant value with focused offerings. Additionally, customers are much more experienced in understanding 3PL capabilities and provider service expectations. Writing in LQ, Chris Norek says that “From a definitional perspective, any function you don’t perform in house can be considered outsourced, however, we typically look at broader supply chain or logistics functions as being “outsourced,” such as warehousing, order fulfillment, and international trade assistance. There is one choice that has to be made in the outsourcing decision that isn’t given as much attention as it probably should—do you use the 3PL’s own software, or implement your own and have the 3PL tie into it? Third party logistics service providers aren’t typically viewed as the preferred source for information technology expertise. Over 80 percent of 3PL users say that having the right software and information technology capabilities are necessary for their providers. However, too often, the responses of 3PL users show that the gaps between expectations and deliveries are significant." Underlying industry challenges influence a 3PL’s ability to close this gap and re-assess their solutions. These challenges include:

  • Fragmented or “patchwork” systems environment.

  • Lack of technology standardization due to changing customer requirements.

  • Providing a balance between global standardization and regional differentiation so that customers get the visibility they need and the local touch they desire.

  • Reduce the total cost of ownership through lowered costs and service-enabled functionality.

  • Increase standardization and integration simplification.

  • Create stable solutions with broad enterprise functionality.

  • Ensure flexible and scalable infrastructures.

  • Enforce an alignment between business and IT.

While 3PLs have created thousands of customized applications to serve customer needs, a core set of software functions remains for 3PLs. Provider software and IT capabilities are directly correlated to the business processes being outsourced. This unique position of providing custom IT services demands the ability to successfully develop these advanced capabilities and they must create consistent, standardized solutions for those services. A checklist of questions for these providers may include:

  • What will you be using the 3PL to do?

  • Will you need extensive functionality?

  • If you have a specific need, determine if the functionality already exists or will it be specifically developed for you?

  • Do you already have the required capabilities within your own systems?

  • Are you thinking about taking the function back in house in the future? If you are only going to use the 3PL for a defined period of time, it might make sense to “bring your own” technology to the table when engaging the 3PL.

Check on the size and particular expertise of the 3PL technology team to see if they can grow and adapt with you. Norek concludes: “The growing use of outsourcing and use of third party logistics providers has shed some light on the need for easy technology integration between the 3PLs and their customers. This issue of integration begs the question of whether the 3PL customers should “bring their own” technology to use in the 3PL relationship, or rely on the 3PL for the needed technology.”

By K.B. Elliott

K. B. Elliott is a freelance writer for LogisticsJobSite.com. Working various logistical positions in the Detroit area for over 30 years gives him a unique perspective on the process. More of his blogs are at LogisticsJobSiteblog.com, and be sure to check out the postings for jobs in nearly any industry at Nexxt.

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