Top Risks Companies Face When Outsourcing Logistics

Outsourcing has become the buzzword in the business world and it is used for every business process from HR to accounting and logistics. It sounds like a win-win situation: your company pays a fixed monthly fee and a professional firm deals with all the complex and difficult details of the tasks.

A Question of Time and Money

It is easy to see why outsourcing logistics and other non-core activities seems an attractive choice:

• You do not have to worry about recruiting valuable professionals;
• You do not have to pay salaries, taxes, benefits;
• You save time to focus on the core business activity;
• Your company can grow faster.

There is, however, a flip side to outsourcing: you are no longer involved in the decision making process and you cannot oversee the accuracy of the activities performed by the outsourcing company on behalf of your business.

In logistics, this is not a good idea. This field of activity covers so many processes with a direct impact on the productivity, good reputation and success of your business. At Logistic Packaging, we have a deep understanding of how fragile the supply chain ecosystem is. When one single process goes wrong, it affects all the others. This is why we will never become a third party logistics provider (3PL), but a business partner who is not making the decisions instead of you, but advises you on making the right decisions.

Among the key risks we identify in using 3PL companies and outsourcing logistics, these are the most serious:

1. The Risk of Breach of Confidentiality

Every company has confidential agreements with vendors, suppliers and clients. Prices, delivery terms and conditions are sensitive information, which should never leave your company. Yet, when you opt for outsourcing logistics, this is exactly what happens.

When you sign an outsourcing agreement with a 3PL, that company will receive all these confidential contracts and other documents needed to perform logistics operations for your company. The 3PL company may or may not apply adequate internal procedures to safeguard confidential data. In case of a data leak, the ultimate victim will be your company and its reputation.

2. Lack of Control

Once you sign an outsourcing contract for logistics operations, you are free of responsibilities, but you are also losing control over decisions made in the name of your business. Of course, the 3PL company will consult you on major decisions and have you sign certain documents, but you do not know what happens on a day to day basis.

And, as you already know from managing your company, it is the little things which may cause major changes, for the good, but also for the bad. In the long run, leaving your logistics operations in the hands of others exposes you to the risk of not being able to identify a fatal mistake.

3. Decreased Quality Standards

Another risk of outsourcing logistics is that your quality standards are not the same as the ones practiced by the 3PL company. This will not be obvious from the very beginning. But once the lower standards are apparent, the damage has already been done: your customers are already looking for another supplier and the reputation of your business is damaged.

4.All the Eggs in the Same Basket

Relying on a 3PL company means that if something happens within that company will leave you hanging – with your products not delivered and your warehouse in disarray. What if the 3PL goes bankrupt? What if they are involved in a legal battle which negatively reflects on your company, as well? What if their workers go on strike? Before you recoup and find another provider of outsourced logistics services, you have already lost contracts, clients, and reputation.

5. Outsourcing Logistics Has Its Hidden Costs

The number one benefit of outsourcing – lower costs – is doubtful. You will need to hire a lawyer specializing in commercial law to analyze the contract before you sign it. During periods of increased activity (the sales season, Christmas, Easter, Black Friday) you will have to pay extra for the supplementary work performed.

Thus, on the long run, you will not make the savings you expected to make. Plus, you are exposed to all the risks above, which will, in the end, cost your company money.

Logistic Packaging is committed to be your partner and help you manage your own logistics operations, with professional advice and products. Stop wondering whether you are making the right logistics and packaging choices – give us a call at +4 021 202 32 38 or send us an email.

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