Logistics as a core business
Supply chains and logistics are not core activities for manufacturing and distribution businesses, but the efficient management of their supply chains is critical to their operation and profitability. This inevitably raises a question for their leaders: do you keep logistics in house, or outsource it to a dedicated supplier?
The traditional prevailing assumption is that keeping services in-house is a way of retaining control. The more distance from them, the more opportunity there is for things to go wrong, for communication to become distorted or for delays to occur, or so the assumption goes.
For some scenarios this may hold true but when it comes to outsourcing logistics to a fourth party logistics provider (4PL) it is quite the opposite. Here's why:
1. Clean data provides superior visibility
At the core of the 4PL value proposition is a consolidated view of multi-carrier activity. Data is critical for making informed business decisions to improve efficiency and reduce wastage. In-house, a logistics manager would need to manually scan each consignment in a time-consuming and significantly costly process to the business.
A 4PL, on the other hand, uses a proprietary technology platform, like efm’s OneFlo, to capture the data from each consignment, flag exceptions and aggregate the data to provide a higher-level view of performance across the supply chain for a given timeframe.
Distilled by highly-trained Account Managers into key insights, this data provides the ability to both improve daily DIFOT performance and achieve overall supply chain optimisation.
2. Improved performance in the short and long terms
A good 4PL will have a control tower view of your entire supply chain and access to real-time data on each shipment. In the short term this means each load is managed, and any critical incident that may affect DIFOT performance can be swiftly addressed.
A 4PL business partner is committed to ensuring your raw materials and product are where you need them, when you need them to be there. Integrated Customer Service, Operations, and Account Management teams ensure that if an emergency arises, any time-critical load can be rerouted or assigned to a different carrier with minimal disruption.
In the longer term, this means that a 4PL is able to identify opportunities for systematic improvement. In meetings with the customer weekly and monthly, the Account Manager reviews the data and identifies opportunities that can improve the customer’s profitability. This could include introducing new or specialist carriers, integrating the system with the customer’s internal Enterprise Resourcing Planning (ERP) system, or streamlining some of the workload, including automating the consignment process and training customer warehouse staff.
3. Multi-carrier solution enables agility
In addition to being swift to respond to disruptions, a 4PL can enable your business to remain on the front foot of a changing landscape. There are always new developments arising for a business that require updates to the logistic solution, from new retailers to new products and new receivers.
While in-house, a logistics team will be consumed with the day-to-day demands of pressing freight transport needs, a 4PL will dedicate an Account Manager to be in constant conversation with a customer through weekly and monthly meetings to understand the customer’s needs and the direction of the business. They are then proactive in bringing emerging issues to the customer’s attention with a proposed solution.
One of the impacts of COVID-19 on logistics, for example, is the increased demand for residential deliveries in very tight timeframes. An in-house logistics team responding to this scenario would need to contact a new carrier directly and go through the time-consuming process of procuring rates and loading them into their technology system. However, a 4PL, would have already curated a multi-carrier solution for each customer, and is therefore much more agile and can pivot to a new approach much faster.
4. Greater carrier reach facilitates enquiry resolution
When a business transitions to a 4PL, their logistics manager sometimes has mixed feelings about giving up the relationship with the carrier. Being able to contact them directly, they say, gives them a greater sense of control. But in the event of a shipment delay, while they might be able to pick up the phone to a carrier’s customer service team, they are actually quite limited in their ability to influence the outcome. Plus, there is no continuity of conversation. You might call today and speak to someone, but when you follow up tomorrow you could connect with someone entirely different with no knowledge of your enquiry.
But with a 4PL, the experience is completely different. First, a customer is assigned a dedicated customer service contact, not just for one carrier, but across the whole solution, which provides the customer with much-needed consistency and peace of mind. Secondly, a 4PL has much deeper relationships with carriers because they manage so many of them on behalf of so many customers. This gives them greater reach and ability to investigate and resolve the issue more swiftly. For example, they can contact someone on the warehouse floor to search for a consignment that has gone missing or call the radio room about ETA for pickup.
5. Reduced headcount improves profitability
Lastly, while not strictly related to control, the reduced headcount required in a 4PL partnership must be mentioned because it provides significant commercial benefit to the customer.
To run a logistics operation optimally, four key roles need to come together:
- Customer Service: a single point of contact to respond to daily enquiries, acting as an extension of the customer’s business;
- Account Management: to attend to escalated enquiries and driving continuous improvement and operational efficiency;
- Commercial: to negotiate with carriers and maximise the customer’s profitability
- Technology: to consolidate activity of all carriers in one place, giving visibility both at a consignment level and a holistic view of the supply chain.
To bring logistics in-house incurs a significant cost of employment of all those people and licensing fees if you add a technology platform. On the other hand, if you work with a 4PL, a customer will typically incur only the expense of its annual freight costs, which, because of the 4PL's scale and leveraging power, are usually significantly less than through the incumbent provider.
4PL: a strategic solution for a business in control
Outsourcing to a reputable 4PL partner can make a solid contribution to the profitability of your business by efficiently managing all supply chain logistics quietly in the background so that your company can focus attention on its core business, keeping its customers happy, and creating shareholder value.
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