19 Nov
One PL, two PL, 3PL! Positive P&L?

Continuing the topic of loses and efficiency, I came across endless debates about the 3PL concept. Adepts of 3PL, more often forwarders and companies selling these services, provide impressive reports on how many millions a year their customers save. However, as is the case with the budget, numbers are complex and controversial topic. From my experience, I can say that the issue with the transition to 3PL most often has an emotional background. Either the owner (or the most important in the Board), by his willful decision, imposes an embargo on the use of outsourcing due to security, or the responsible for logistics decides to outsource services for a number of political or personal reasons. But what about the figures? As Jack Trout said - "Nobody knows the future" and therefore the numbers can be matched to any conclusion.

I had a chance to be behind both sides of the barricade - repeatedly participate in the analysis of the pros and cons of 3PL for the company and sell these services to partners. One may agree or disagree with Machiavelli, but his thoughts about own and hired army seems to me a genius. To anyone interested, I recommend rereading Ch. 12 books Sovereign (Il Principe). Undoubtedly, we are not talking about the state, although many international corporations are quite close to this title. And not about the army, although logistics as a term came from the military sector. However, it is worth to remember a simple detail - every company strives to maximize profits within the framework of available tools and legal / contractual restrictions. In other words, your partner is primarily interested in HIS profit. Second, so you don't run away as a customer. And only after that, how big are your losses from logistics.

Undoubtedly, it makes no sense to buy your own fleet of cars, wagons or containers if you have a small cargo turnover and there is enough equipment on the market. For sure, the 3PL provider can have better freight rates due to its dominant market position or specific long-term contracts with carriers. Moreover, a 3PL provider could have a dozen of “know-how” and a unique IT platform, which is important during digital breakthroughs. However, it is necessary to remember about the reverse side of the coin. Namely, that a 3PL provider needs to fill his network with cargo to maintain other contracts, and this might run counter to your interests. Also, it is necessary a serious stimulus to remain optimize your costs, after the complete transfer of logistics under provider’s control. Therefore, the classic “make or buy” solution is complemented by the integration of information systems, the time frame for training third-party personnel, the mental compatibility of your employees and the contractor, and ... how critical your collapse or exit from the market will be for a 3PL provider.

I could recommend combined solutions with the absolute need to maintain control of the process and expertise within the organization, parity between contractors and multiple alternative routes. Even not always optimal from an economic point of view. But more about it next time.