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In today's complex world of supply chains, companies are increasingly turning to contract logistics services to optimize their operations. These services, provided by specialized contract logistics companies or contract providers, encompass a wide range of shipping services that go beyond simple transportation solutions.
What is contract logistics?
Contract logistics services refer to a long-term collaboration including a wide range of services going from conveyance of products or spare parts to final end customer delivery. This implies owning the necessary equipment for the range of services offered: warehouses, human resources, suitable equipment, stock inventory management, dispatch follow-up, after-sales service, etc.
The contract provider becomes a key link in the value chain that unites all the industrial company or retailer’s partners, and preserves its proper operation. This process is an ideal solution for partners involved most often in long-term logistical service contracts.
What activities are included in contract logistics?
Contract logistics, also known as third-party logistics / fourth-party logistics, involves outsourcing of logistics operations to a specialized company, the contract logistics provider. This provider acts as an extension of your business, offering comprehensive solution.
Cross-docking
With cross-docking, a contract logistics company receives goods from a supplier and then immediately transfers them to another location, often directly to the end customer. This eliminates the need for storing inventory for long periods. Your company may benefit from this kind of logistics by managing inventory levels, specifically, by lowering storage costs and a decreased risk of obsolescence. Moreover, by eliminating storage time, cross-docking can significantly speed up order fulfillment and lead to overall typical supply chain efficiency using the expertise of contract logistics providers in streamlining logistics processes.
However, not all products are suitable for cross-docking. For example, fragile or perishable items may require special handling that isn't possible with cross-docking.
Dropshipping
Dropshipping is a logistical model of online sales where the shipping process is handed over to the supplier, i.e. the logistics operator. The role of the online store in this logistical model is limited to collecting purchase orders and forwarding them to the supplier, who ships the wares to the customer. In this case payment for products is made only at the time of sale to the end customer, and the role of the store is limited to promotional activities, building a consistent brand image or customer acquisition.
Fulfillment
On the other hand, fulfillment is a service that involves the handling of orders by a third-party operator, which may cover the entire order processing, or only a part of it. When a company decides to use the fulfillment service, the entire process of warehousing solution and shipping is taken over by the logistics operator (from storage and distribution of goods to packaging and IT support), and the store owner can focus on activities such as product promotion.
The most important difference that exists between the two models is that in fulfillment, the e-commerce company has much more access to information and control over the various stages of shipping fulfillment.
Advantages of the service
Outsourcing logistics process in particular offers alternative ways that can make a lot of difference to multiple enterprises with regard to supply management and optimization. Thus, when a company works with a 3PL provider they don't have to spend lots of amounts of money in purchasing the warehousing space, equipment, and staff, and therefore they save a huge amount of money. Moreover, 3PLs came to the finger with great experience and best technologies in different sectors including warehousing, transportation, and order picking. This translates to productivity enhancement in the overall value chain of the supply chain.
The third strength that can be referred to contract logistics is its flexibility and its capacity to meet the needs of companies of different sizes and industries. There are no large investments needed to change the operations because the centrality and flexibility of the model allow easy responses to market demand changes. This feature is most useful for fast-growing organizations. In addition, the services provided by 3PL may include special services that the company may not incorporate within its organizational strategy, for instance, services involving hazardous products or perishable goods. Outsourcing of such tasks can make this easier because companies are able to delegate such responsibilities and concentrate on central corporate purposes such as developing products and marketing.
Disadvantages of the service
Contract logistics presents an appealing option to organizations that are interested in the administration of supply chain, but this method has some benefits as well as risks. One emerging issue is control. Organizations that set high standard or those transporting very sensitive products may not be please holding their goods with another party. Relationship variables are also crucial and the right partner has to be selected. Companies require a lot of time when considering the 3PL company, to ensure that they have the right expertise, abilities as well as organizational cultures that can be relevant to the needs of the firm. Further, the integration of the 3PL partner’s systems with an organization’s operations is not easy, and actual charges for services or certain volumes erase much of the savings that an organization was expecting to achieve in the short run.
What are the benefits of a contract partner?
The most obvious benefit of contract service to a company is cost savings, particularly by eliminating the need to build and maintain a costly logistics infrastructure. By farming out the work, a company can avoid the expense of shipping facilities, trucks, packing materials, and so forth, as well as the personnel to do the work. It can also focus more of its attention on its core business.
In addition, since large contract logistics firms have the benefit of scale, they are often able to negotiate lower prices from suppliers than a typical business could. For that reason, it may be cheaper to work with a contract logistics partner than to manage those tasks by internal process. Contract firms in logistics now play a major role in e-commerce industry, taking on responsibility for the contract warehousing, inventorying, packing, and shipping of an e-commerce company's products.
Contract services in logistics - risks. What should you watch out for?
Outsourced contract logistics is a strategic value that has the potential to unlock great value for businesses, though not without certain associated risks.
One of these is a concern for autonomy or a sense of inability to have control over specific activities. While outsourcing your supply chain to the third 3PL, you will be delegating the responsibility of the smooth running and the visibility of your supply chain processes to the third party provider. It can be especially dangerous for businesses that value their quality each piece or product they deliver or for those dealing with special types of goods. There are two great dangers: to fail right and to succeed wrong. The choice of the wrong partner is simply catastrophic. Don't rush into choosing a 3PL partner. Ensure that they possess expertise, skills, ability, and your intended firm’s organizational culture that meets your desired requirement.
Integration is another challenge that can be encountered by the organization. Integrated process of merging both yours and the 3PL’s systems is always challenging and might take a long time. This distorts the normal cycles of shipment fulfillment and inventory management and can result in holding large inventories for long periods, order backlogs and twice-processed orders. There should be acceptance of the fact that there will be costly fund required in the beginning when all is set for transition.
Last but not least, be aware of other charges – either within or outside of your budget plan. Contract logistics can have initial cost advantages but this is not the same with hidden costs involved in individual services. Finally, it is always important to consider the fact that contract logistics aim at reducing risks from the supply chain network and this can only be achieved when working close with your third-party logistics provider in achieving the best performance.
Contract logistics. Take advantage of AsstrA's services
Working with AsstrA allows avoiding inefficient distractions from the main business. We will take charge of operational practices such as storage of merchandise and shipment, so that you can focus on the identification and creation of new products as well as the promotion of your products.
Unlike other companies that engage in provision of basic logistical services, AsstrA is an all-encompassing provider. Our team of specialists offers skills in strategic planning in storing of goods, warehousing, and transportation planning to guarantee affordable and appropriate transport from within or from other countries.
As your business scales, so does the complexity of your supply chain. Keeping up with growing inventory demands can be a strain. Contract logistics with AsstrA offers a solution. We can scale our services alongside your business, providing the storage space you need without a upfront investment. This frees up your capital for other areas of growth, allowing you to focus on what matters most – running a thriving business. We also present specific services for detailed shipment including perishable or dangerous goods categories. Moreover, AsstrA appreciates the value of managing potential risks affecting the transportation of your products and has efficient risk management protocols in place.
Having AsstrA as a contract logistics provider helps to effectively improve your operational performance in the planning supply chains.