How Smaller Companies Benefit From Outsourcing Logistics Operations

Analyst Insight: The pandemic and recent supply chain disruptions have affected small to medium-sized companies more than bigger enterprises. This is because smaller businesses have fewer alternatives and can't afford many tools that streamline operations and improve efficiencies. These businesses have found that outsourcing their logistics operations can help them to become more competitive against bigger enterprises and thrive. 

According to the 2022 Third Party Logistics Industry Report, supply chain disruptions cost $228 million in 2021. While small companies often outsource their payroll, accounting, HR and marketing operations, only some understand the benefits of outsourcing their logistics operations. By outsourcing to a 3PL, small companies can “help their customers manage supply chain disruptions by offering visibility into inventory, real-time access to data for better supply chain transparency, seamless workflows, and insights into future challenges or issues,” per the 3PL report. 

Outsourcing logistics operations helps small to mid-size businesses to: 

• Cut costs. When shippers outsource their logistics operations, they convert fixed costs into variable costs, release capital for investment in the business, and help companies avoid large outlays of cash when the business starts. 3PLs have a vast network of qualified carriers they work with, ensuring the business will get the lowest freight rates and faster transportation times. 3PLs can also negotiate general rate increases and fuel surcharges, further reducing costs. 
• Increase efficiency. When shippers perform operations in-house, such as R&D, production and transportation, they must pass these costs on to the end customer. If shippers outsourced these operations, they could offset costs and improve efficiencies, because the outside provider has a better cost structure and greater economy of scale. 
• Reduce labor needs. When outsourcing, small businesses don’t have to hire additional personnel to perform certain operations, such as picking and packing in the warehouse, cross-docking, taking inventory and shipping orders. These operations can all be performed by a 3PL, so smaller shippers don't have to hire the labor for these operations. 
• Reduce training needs. When small businesses start new product lines, open new markets or begin new projects, they must hire and train the right people, which can require an additional budget to fund such activities. A 3PL can fill in the gaps with people who are already trained and experienced in these areas.
• Focus on business. Small businesses need to focus on their core business to grow, but often executives are tasked with managing crises and other activities. Outsourcing to a 3PL gives managers more time to work on their priorities of gaining market share and profits. 
• Use advanced technology. Many large enterprises can afford their own warehouse management and transportation management systems, while smaller businesses cannot. Working with a 3PL, the small business can access state-of-the-art tools without investing in those systems. 
• Have a competitive edge. Outsourcing logistics operations helps small businesses level the playing field. Small companies will have access to many of the operations and benefits that large companies have when outsourcing, without adding employees, training people, buying new equipment or learning a new operation.  

Outlook: For small to mid-sized companies, it’s vital to outsource logistics operations to qualified and experienced 3PLs, helping the small business to streamline transportation processes and operations. With streamlined operations, the small business reduces the complexity of procedures, allowing it to focus on crucial aspects of the organization. Working with a 3PL eliminates the need to add more labor and invest in training and new equipment.