Third-Party Logistics (3PL) – Insource or Outsource

Company Operated (Insourced) vs. Outsourced 3PL Warehouse Operations?

Deciding whether to operate your own warehouse, distribution, or fulfillment operations or to outsource to a third-party logistics provider (3PL) is an inherently complex task on a variety of levels. A plethora of considerations must be addressed as part of a thorough quantitative and qualitative third-party logistics provider (3PL) vs. company run analysis that addresses at a minimum, the following issues: Current situation and conditions; Strategic and tactical goals; Customer service requirements; Capital and recurring costs; Financial and P&L impact; Flexibility and scalability; Control and risk.

It is not a valid approach to simply compare your current operations to the service and cost equation of a third-party logistics provider (3PL). Before doing so, you must define the delta between the efficiency of your current warehouse design and that which is possible. If a performance gap exists (we refer to this as an Operations Performance Gap – OPG™), then the costs and benefits involved in bridging the chasm must be factored into the comparative analysis between self-run and outsourced options. Outsourcing is not always the right decision. After all, adding a middleman can add costs and limit control unless some economy of scale, tactical advantage, or accounting edge is evidenced. If the analysis and due diligence weigh in favor of outsourcing to a third-party logistics organization a variety of questions are spawned:

  • What information will 3PL providers need to address our requirements?
  • Which 3PL organizations are best positioned to achieve our goals?
  • How do we administer a sealed competitive bid process among 3PL providers?
  • How do we perform a comparative analysis among the bid responses?
  • How do we negotiate the duration, terms, and cost of the contract?
  • How do we develop a seamless/transparent migration plan?
  • How can we mitigate risk and leverage our intellectual capital during the transition?

OPSdesign Consulting can help you address this process and answer these and many other questions regarding third-party logistics provider (3PL) options. Our experience tells us that while you can outsource the execution (under the right circumstances and in the right industries and market channels), you cannot outsource planning and ongoing strategic management. Even the best third-party logistics provider (3PL) needs to be guided and directed to meet the changing demands of the business. Stringent performance metrics must be established, and the operations must be continually benchmarked against the standards. Like all warehousing, distribution, and fulfillment operations, third-party logistics enterprises must be subject to continuous improvement programs to maintain a strategic advantage and tactical superiority™.