Disadvantages of Third-Party Logistics

Written by tony oldhand
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Disadvantages of Third-Party Logistics
A company can buy its own trucks or contract out the trucking. (Thomas Northcut/Photodisc/Getty Images)

Logistics involves the movement of good and services from one point to another. Goods transportation involves moving products from a factory to a warehouse or from a central distribution point to retail stores. Product logistics is typically accomplished in one of two ways. A company can do it in-house by owning its own trucks and moving equipment. Alternatively, the company can contract the work out, or use third party logistics (3PL). Using 3PL providers may save money, but negative consequences may surface.

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Loss of Control Concerns

Experts at Radford University and Bill Drummer, CEO of ADI Logistics, concur that loss of control is a disadvantage. Drummer states you are entrusting a vital part of your business to strangers. When you contract a 3PL provider, you are giving up control of the product as soon as it leaves the shipping dock. If you trust the 3PL company, this is not a concern. If, however, you are using a new untested 3PL firm, you may end up wondering about the capabilities of the new firm.

Personnel Concerns

When you outsource your shipping, shipping department employees may have to be reduced. If the company cannot relocate the personnel, layoffs may occur. This affects the morale of all employees, since job insecurity sets in. If you have to lay off workers, inform all employees of changes and your attempts to lessen the negative effects of those changes.

Just-In-Time Concerns

Just-in-time is a business model in which you do not keep a large inventory. Rather, parts or goods are delivered as you need them, or in essence "just-in-time" for assembly or transfer. Therefore, JIT logistics requires frequent but small shipments. If the 3PL company is familiar with the JIT model, it works; if the 3PL company is unfamiliar with it, it will not work efficiently. Furthermore, glitches in the 3PL company's system can throw off JIT completely. For example, a hotel has a banquet for 300 people scheduled at 6 p.m. The banquet manager states to the 3PL company to deliver the raw food at 3 p.m., yet the truck driver gets lost and the raw food is not delivered in time. As a result, the dinner would be delayed.

Loss and Damage Concerns

If the 3PL company is careful with goods, this should not be a problem. However, false claims may be made by unethical 3PL firms regarding the handling of freight. As a result, loss and damage to the goods might become excessive. Likely, your insurance company will investigate the loss and damage claims. In the meantime, you would have to wait for insurance reimbursement and your customers would have to wait for a new shipment of freight. In a nutshell, loss and damages cost time and money for everybody involved.

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