Logistics is the process of managing and receiving inventory, warehousing storage, and shipping logistics. All these functions are the backbone of every Company. Neglecting any of them can delay providing goods to customers. Contract logistics plays a vital role in the success of any product-based business. It involves outsourcing a company’s supply chain and logistics operations to a logistics company.
The 3PL logistics provider manages the transportation, warehousing and delivering goods to the customers. It helps a company to save operational costs and focus on core activities like product development or market research.
What Is Contract Logistics?
In simple terms, contract logistics is when a business signs a long-term agreement with a logistic company to manage and improve their entire supply chain. It’s like outsourcing to a third-party logistic provider but with a long-term contract. Contract logistics is an important part of a company’s supply chain operations. But it always remains behind the scenes. In reality, contract logistics helps in the efficient movement and management of goods in a company.
In contract logistics, a logistics company handles all the logistics and supply chain operations for a business. This includes inventory management, transportation, order fulfillment, reverse logistics, processing orders and collecting payments on behalf of a company.
The main aim of contract logistics is to optimize supply chain operations and reduce warehousing charges. Logistics companies in Delhi and other metro cities use advanced technology, specialized equipment and experienced staff to manage a business’s logistics and supply chain.
Contract Logistics Example
When an online clothing brand manages its own warehouse, transportation, and e commerce fulfillment of orders, it involves a lot of capital investment. They have to hire staff and manage the salary. The business even has to buy advanced equipment and manage all its goods, which can put a lot of stress on the company. However, when companies outsource all the warehousing, transportation, and inventory management to contract logistics, it streamlines all the supply chain operations smoothly.
The contract logistics, storage of the clothes in their warehouses, managing the stock, and delivering to the customer on time help grow the clothing brand.
How Contract Logistics Works?
The contract logistics work step by step, as listed below:
1. Agreement
The Company has a long-term agreement with a logistics provider. The contract outlines all the services provided and the period, such as transportation, warehousing, inventory management and shipping.
2. Warehousing And Storage
The logistics provider receives the goods from the Company and stores them in their warehouse storage space. The provider manages the stocks and arranges the products properly by maintaining proper conditions inside the warehouse. Simultaneously, the contract logistics provider uses advanced systems to track inventories in real-time and inform the company about stock levels and reorder requirements.
3. Order Processing
Whenever a customer places an order, the contract logistics provider system receives it. They pick the products from the warehouse and pack them for shipping purposes.
4. Transportation Management
The contract logistics provider arranges transportation and manages carriers for delivering goods to the customer. The contract logistics provider selects the best transport company and shipping routes to increase the efficiency of delivering goods and reduce costs.
5. Order Fulfillment And Delivery
The contract logistics company ensures that the product reaches the customers on time. Whenever a customer wishes to return the product, the contract logistics provider picks the product up again from the customer, inspects it, and rearranges it in the warehouse.
Difference Between Contract Logistics And 3PL logistics
Services Provided
Contract logistics manages the entire supply chain process, including warehousing, inventory management, transportation, order fulfillment, and reverse logistics with a long-term agreement. In 3PL, companies can outsource specific logistic functions like warehousing and transportation to any external provider. It only manages part of the supply chain.
Clients Handling
Contract logistics works with multiple clients according to their agreement duration. However, 3PL providers also work with multiple clients but they customize the services at any time.
Benefits Of Outsourcing Contract Logistics
Expertise
The contract logistics provider has extensive knowledge and experience in various aspects of the supply chain. It will optimize the entire supply chain and warehousing operations of the Company during the agreement period.
Increase Customer Satisfaction
Professionals manage the company’s logistics. This ensures the faster and more timely delivery of goods to customers and increases customer satisfaction.
Cost Savings
Outsourcing 3PL activities helps the company save on warehousing costs. The Company does not need to spend money on managing the warehouse and fulfillment, recruiting staff, buying forklifts or managing transportation. Contract service providers manage these all at low cost.
Focus On Core Business Activities
Outsourcing contract logistics activities helps a business focus on core activities like product research, development of new marketing strategies, and many more. It helps to increase business performance.
Challenges In Contract Logistics
Dependency On The logistics Provider
The logistics provider manages the entire supply chain. If any operations go wrong, like warehouse mishaps and transportation delays, then it can adversely affect the Company’s supply chain.
Lack Of Control
When a company outsources all its logistics operations, i.e., procurement of raw material, transportation, warehousing and order fulfillment, it loses some control over its everyday operations. The Company cannot inspect every detail of the product movement, sometimes leading to delays or miscommunication.
Risk Management
Outsourcing contract logistics involves certain risks like late deliveries and damaged goods. It can badly affect the company’s reputation or decrease customer satisfaction.
When Should You Outsource A Contract Logistics Company?
Experiencing Rapid Growth
If your company is experiencing rapid growth, then you should hire a Contract logistics service provider. It can handle large volumes of products without investing capital in infrastructure and staff recruitment. For example, if you have an online clothing brand and there is a sudden rise in sales, then it is obvious that you will require more space to accommodate clothes. A contract logistics provider can manage warehousing, deliveries, order processing, and return management.
Less Experience in Logistics
If a Company lacks proper resources, technology and experience in warehouse and logistic, then it’s better to outsource it to a Contract logistics provider.
For example, suppose a healthcare provider is best at producing medical equipment but needs more resources or needs to be more knowledgeable about storage and transportation.
Reduce Operational Costs
A company must invest a lot of capital to manage its own warehousing, transportation and warehouse inventory management. However, businesses can hire a contract logistics provider if they want to reduce operational costs.
Expanding New Market
Whenever a company expands its goods to an international market, they can face logistics challenges. It’s better to hire a contract logistics provider with global expertise. The provider will handle almost everything from shipping to customer delivery, allowing the business to expand in international markets.
Conclusion
Contract logistics plays a significant role in supply chain operations. If a company does not have to spend much capital building an ecommerce warehouse or buying heavy equipment like forklifts, it should hire a contract logistics provider. Outsourcing all logistic operations will reduce operational costs and enable the business to grow Nationally and Internationally.
AAJ Supply Chain Management
