5 ways outsourcing your logistics can tame unpredictability

During economic uncertainty, business leaders often turn inward and focus on tightening up the resources they control, such as salaries, system and infrastructure investments, and other expenses. The option of outsourcing, which is perceived to be an incremental cost, is often the last thing on their minds.

But outsourcing offers several advantages at times like these, a fact that isn't lost on supply chain and logistics leaders. A recent survey by Gartner found that 74% of logistics leaders expect their logistics outsourcing budget to increase in the coming years with the primary motivations being to reduce costs, improve technology, and increase customer satisfaction.

Outsourced logistics doesn't have to be an extra expense, especially if it's balanced with reductions in fixed costs. The expertise and efficiency that third-party logistics (3PL) companies bring to the equation can actually make the expense proposition a wash while increasing the flexibility businesses need during periods of unpredictability.

Here are five reasons why now may be a better time than ever to take a fresh look at partnering with a 3PL to build out or supplement your logistics network.

1. Cost reduction

Labor costs and real estate expenses are typically among the largest line items on a business's financial statement. Outsourcing allows some of these costs to be transferred to a third party that is motivated to deliver maximum value to your business. Employees and facilities, and the additional work that can come with them such as recruiting, employee retention, building maintenance, and insurance, are taken off the business. 3PLs can reduce their clients' costs in two possible ways. One, by optimizing workloads across multiple clients, whose lower fixed costs give them greater flexibility. Or two, by moving tasks to regions where expenses for people, facilities, and equipment are cheaper.

The bottom line: paying for outsourced labor and facilities is often cheaper than keeping these functions in-house. In fact, NTT Data's 2023 Third-Party Logistics study, found that almost 70% of organizations that outsource part or all of their logistics report that using a 3PL has contributed to reducing overall costs.

2. Increased efficiency

Management guru Peter Drucker said, "Do what you do best and outsource the rest." Perhaps the most compelling argument for outsourcing logistics is to rid your company of functions that come with high costs and/or sophistication but aren't necessarily core competencies. Outsourcing allows the organization to focus on what it does best and delegate non-core tasks to specialized service providers. Businesses also get access to specialized skills on a short-term basis without committing to long-term investments. The result is a win-win: better performance at a lower cost.

3. Workload flexibility

Volume and associated workloads are rarely predictable, especially in today's volatile market environment. Sales may vary by season, local events, weather, style trends, and other factors, with a direct impact on logistics operations. The irregular demand patterns that are common in many industries can make it difficult for businesses to forecast and manage logistics costs, especially if these expenses are associated with in-house resources and full-time employees. Outsourcing provides the flexibility to scale up or down based on immediate needs. Organizations can adapt to changing market conditions without the challenges and pain associated with hiring and layoffs. You only pay for what you use.

4. Risk mitigation

The last thing businesses need in uncertain times is significant fixed expenses. Economic turmoil brings uncertainty and risk that working with a 3PL can help mitigate by turning fixed costs into variable ones. For example, owning a warehouse is an expensive proposition, requiring businesses to pay for space whether or not they use it. 3PLs have economies of scale, expertise in meeting variable demands, and flexible cost options. By diversifying operations across multiple locations or service providers and distributing tasks and processes, businesses can reduce their dependence on a single market or supplier to minimize the impact of local challenges.

Contracting with two or more service providers for a given task enhances flexibility and can actually lower costs by fostering competition. What's more, service providers are often willing to negotiate service level agreements (SLAs) that require them to assume a portion of the risk associated with delivering the outsourced services. That reduces the overall risk exposure for the contracting company and offers greater predictability.

5. Increased speed to new markets

As the past few years have proven, consumer behavior is dynamic. Following the pandemic and stimulus-driven spending spree on appliances, fitness equipment, and electronics, the focus has shifted to apparel, travel, and restaurants. Expectations when purchasing goods online have also evolved, thanks in part to Amazon, with more than 90% of consumers now viewing two-to-three-day delivery as the standard. Organizations with a fixed, in-house logistics network may struggle to keep up with these changing habits and preferences.

Outsourcing allows organizations to quickly respond to changing consumer demands by supporting rapid entry to new markets, localization of goods in growing markets, or product launches focused on a target audience-all while providing the accelerated delivery that consumers expect. And these efforts can be accomplished with limited investment, without the need for capital expenditures or fixed operational expenditures.

Finding the right logistics partner

Whether your organization is looking to save costs, improve performance, reduce risk, expand to new markets, or a combination of these, outsourcing your logistics is a great place to start. And as you evaluate 3PL partners, consider Iron Mountain Warehousing and Logistics. With facilities and resources throughout the country, flexible service agreements, and quick setup and onboarding, Iron Mountain is your agile 3PL partner with a legacy of trust. Visit our page to learn more about how we can help you build a more agile supply chain.

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