Third party logistics is the concept used in the context of supply chain management. It basically refers to that process by which companies basically outsource the majority of activities related to supply-related aspects like warehouse management, shipping, distribution to the consumers, and other such aspects related to the supply of the company’s products to end users. In order to get a better idea about this concept one should look at some of the advantages and disadvantages of third party logistics –
Advantages of Third Party Logistics
Focus on Core Competency
The first and foremost advantage of third party logistics is that it helps the company in focusing on the core competency of the company because by outsourcing the supply aspect the company can invest its resources and time in the research and development aspect apart from improving the operational efficiency which in turn will help the company in the discovery of newer products as well as giving the customers of the company best possible service leading to more satisfied consumer and we all know that 1 satisfied customer brings 10 customers along with him or her.
Expertise and Professional Help
Another benefit of third party logistics is that company gets the services of those partners who are experts in supply chain management and hence their professionalism helps the company in a great way in ensuring that costs associated with supply chain management are minimized without interruption in the customer service. In simple words just like a portfolio manager can handle the financial portfolio of an individual in a more professional way in the same way third party logistic company is in a better position to handle supply chain management-related issues of the company.
Cheaper Option
In the case of third party logistics companies have to just pay charges to others as opposed to locking of capital in developing infrastructure for ensuring that supply of the company’s products is uninterrupted. Hence once the company has appointed third party logistics then it does not have to lock its capital towards the development of warehouses, transport vehicles, extra workforce, and so on for the management of supply chain management.
Disadvantages of Third Party Logistics
Increased Dependency on Third Parties
The biggest disadvantage of third party logistics is that it leads to the increased dependency of companies on third parties and hence if third party logistic company suddenly decides to stop giving service due to non-agreement on various terms of the agreement between the company and third logistics company then the company will be in big trouble as the whole supply chain management system of the company is at risk of collapsing.
Handling of Data to Outsiders
Another problem with third party logistics is that it involves handling important information like customers addresses; customer’s order history and other important data related to the company’s product and working methodology to third parties and in this age of technology where data is like gold there is a risk this data can be passed to competitors which in turn can prove to be a very harmful in the long term as one can never know how competitors will use that data in future against the company.
Not All Companies are Good
While the company takes services from third party logistics companies in the hope that they will deliver according to the terms of the agreement but not all companies are good in the sense that many times third party logistic company are not able to match the standards of the company and hence the quality of service can be a big issue which in turn will affect the goodwill of the company in the eyes of consumers and hence a big drawback if the company is using third party logistics.
As one can see from the above that third party logistics has pros as well as cons and that is the reason why any company thinking of using third party logistics for its products should carefully read the above points and then only should consider appointing third party logistics for the company’s products.