Channel

Weighing the Benefits

By D. Douglas Graham

With saving a buck and gaining efficiencies prime directives, businesses scrutinize their operations more closely now than ever before, looking for weaknesses and tweaking when they are found. However, taking the lead out sometimes means contracting functionality to somebody else. Ever since the Internet made it possible to do business without a physical store and warehouse, retailers have increasingly farmed out such functions as order fulfillment and shipping to third-party providers (3PLs), many of which excel at what they do because they do nothing else. Distributors too are hopping on this train, as doing so frees them to focus more sharply on core competencies.

Goods transportation is one of the most vital distribution functions, but for some distributors it’s a problem area. Driven by the need to succeed, they sometimes invest the lion’s share of their financial and human resources into securing orders and less to getting them out the door. Distributors traditionally keep transportation management inside, where it is regarded as a department of the warehouse. But delivery – both long distance and short range – is a science not easy to master.

Giving Up the Driver’s Seat
Top logistics outsourcers offer midsize distributors good reason to do business with them. Not only do most perform with panache, they also pass along savings in the form of volume discounts.

“Leaders in logistics management streamline everything associated with transportation, including cost,” explained Carrie Gendrau, operations manager for Outsource Freight Management (www.outsourcefreight.com). “They have relationships with LTL carriers and greater buying power than a distributor. They also have accounting issues worked out to the advantage of their customers. For example, most carriers expect to be paid within 15 days, but usually work with 3PLs on a 30-day turnaround. This allows providers to bill on a 30-day cycle, giving their customers the opportunity to hold money longer and use it more productively.”

Shipping managers build networks of local and national transportation sources, with which they have separate relationships. A 3PL takes all of that under one wing and provides 24/7 Internet access to ongoing processes. While this approach works well for some distributors, most default to the old-school way of doing things: maintaining their own delivery fleets, hiring their own drivers, and relying on 3PLs only sparingly.

For those looking to make a change, this is good time to outsource. Providers are hunting for freight, prices have become more competitive, and there’s been an increase in services. On-demand transportation management providers, for example, specialize in the delivery of emergency or unplanned shipments via courier or overnight air, with services offered on an as-needed basis.

Provider Pluses
A 3PL’s amenities list should include a physical infrastructure sufficient to do the job for which it may be hired. The company should also be heavily invested in IT acquired on behalf of customers. Management must be expert in the transportation trade, yet malleable enough to understand the business of each of its customers. Financial stability is an obvious must, along with a reference list of current clients.

For local delivery companies, the song remains the same—with some exceptions. Most small shippers lack IT infrastructure and few need it. Look instead for stability, competence, and a history of excellent customer service.

“Distributors are all about price and availability,” noted Joseph Bennett, senior director of wholesale distribution services for Infor (www.infor.com). “On the trucking side, everything comes down to price and reliability. Most distributors handle the transportation task themselves because failure to deliver in the construction trade does injury to its service reputation: A distributor must keep its promises. However, in my experience, a transportation provider will do a better job at that than a distributor simply because shipping is all it does.”

Doug Graham is a St. Louis-based freelance writer. Reach him at 314-394-0371.

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