Outsourcing to a Third-Party Logistics Provider
Q: From a shipping perspective, how can manufacturers best address today's increasing regulations and demand volatility?
A: Outsource your shipping to a third-party logistics (3PL) provider. The answer might sound a bit self-serving, but I believe most manufacturers would agree if they took the time to crunch the numbers. A 3PL is much more familiar in dealing with the complex transportation regulations of the federal government, as well as among different states. The same goes with handling the peaks and valleys of customer shipment demands—3PLs have much more capacity with a network of carriers to deal with fluctuations in shipping needs. By leaving all these headaches to a 3PL, manufacturers can better focus on what they do best.
Q: But what about the cost of outsourcing shipping?
A: In most cases, a 3PL should be able to reduce transportation costs by at least 5 percent, and as much as 25 percent, for manufacturers who have been running their own shipping departments. In addition to the efficiencies that a 3PL provides, the manufacturer is able to eliminate costs such as payroll, taxes and workers' comp insurance. You also are reducing risk for the manufacturer, because the 3PL will even cover the cargo insurance for shipments.
Q: How can manufacturers best decide whether outsourcing their shipping needs will benefit their operation?
A: Typically, the deciding factor is the amount of your overall freight spend. Shippers of any size can outsource their freight on a spot basis and justify these types of expenditures. However, when it comes to freight management (bidding, procurement, carrier realignment, order consolidation and optimization, and load execution), manufacturing companies typically should consider hiring a logistics firm if their freight spend exceeds at least $3 million. In weighing the decision, you should also look at other cost savings besides reducing staff. For example, if you are a food company, you may benefit from using a 3PL to store product in refrigerated trailers versus renting from or owning a freezer facility for fluctuating storage needs. Or if a manufacturer is running its own private fleet, a 3PL can take over its operation—eliminating risk and expenses related to safety issues, reducing equipment costs, and getting rid of all the headaches of keeping up with DOT regulations. For shippers utilizing dedicated lanes, a 3PL that is asset-based can provide even greater cost savings.
Q: What if the manufacturer still wants control?
A: You don't have to give up control. Most 3PLs today provide the technology that allows you to keep a close watch over your shipments. But if you are still concerned about eliminating your shipping department, you can simply contract with a 3PL on a temporary basis during seasonal peaks. Many postal delivery companies, for example, contract with a 3PL during the holiday season to avoid ramping up with temporary drivers.