Retail, CPG and Logistics
Strategic benefits of logistics outsourcing
According to a leading management consulting firm, any business with a significant logistics component can reduce its costs by 15 to 20 percent by outsourcing it to a third party. From 2PL to 5PL, several logistics outsourcing models exist allowing a business to tailor what they outsource.
2PL outsources only logistics, while 3PL outsources packaging too. 4PL outsources the entire logistics chain, and 5PL leverages consulting services with cutting-edge technologies such as big data, machine learning, and artificial intelligence.
Owing to its benefits, the global logistics outsourcing market was valued at $63 billion in 2023 and is expected to rise to $79 billion by 2028. Logistics outsourcing provides numerous benefits, such as faster scaling of operations, higher efficiency, and access to cutting-edge logistics technologies.
This article explains the common in-house logistics challenges for businesses and the strategic advantages of outsourcing.
Frequently outsourced logistics services
Data from a leading online platform specialising in data gathering and visualisation suggests that transportation, warehousing, customs brokerage, international transportation, and freight forwarding are top services businesses outsource.
Service | % of businesses outsourcing the service |
Domestic transportation |
67.5% |
Warehousing |
63.5% |
Customs brokerage |
46.0% |
International transportation |
44.5% |
Freight forwarding |
44.5% |
Other services businesses outsource include fulfilment services (picking and packing orders), shipping and distribution, reverse logistics, inventory management, and transportation management.
Common logistics challenges for businesses
As your business grows and the number of orders increases, it becomes challenging to manage the warehouse and the logistics, including receiving orders, packaging, shipping, billing, managing returns, inventory management, and handling customer queries. Some common challenges growing e-commerce businesses face are –
Limited storage space
Your existing storage and packaging space may be a room that is suitable for current operations. However, what do you do when the business grows and needs a bigger space to segregate items with a separate packaging area? There are a couple of options –
- Rent a bigger space.
- Outsource the logistics to a fulfilment service provider.
Renting a space requires additional investment in the maintenance of the space and its security. By outsourcing the service, you do not have to manage the physical space and hire staff for it.
Tracking orders and returns
In a warehouse, there are several ongoing activities simultaneously - new orders arrive, items await dispatching, returns are received with customers waiting for refunds, the supplier’s consignment has not been reached yet, and so on. It is difficult for a growing business with a small team to manage all the moving parts of a business.
Delivery errors or delays
Products may reach customers late, damage in transit, or a wrong item could get delivered. For a fast-growing business, packages could pile up, which makes the work of an in-house team complicated.
Strategic benefits of logistics outsourcing
You may already be aware of common benefits such as cost reduction, access to expertise, better efficiency and flexibility, enhanced customer service, and the ability to focus on core business. But here are some of the essential but overlooked benefits of outsourcing logistics
Switch from fixed to variable cost of logistics
Logistics outsourcing companies let you pay only for the services you use, enabling you to use resources efficiently and adapt better to market fluctuations. In the area of distribution logistics and associated processes, outsourcing significantly reduces your tasks, the need to hire a team, and the costs.
>Access cutting-edge transportation technologies
If you have in-house logistics, you may own a fleet of vehicles for which you need regular maintenance, staff, and fuel. By outsourcing, you hand this over to a partner who takes care of the fleet maintenance and tracking using technologies such as the Internet of Things (IoT). The logistics outsourcing companies take care of the shipping while you focus on your business and track the status of deliveries using the service provider’s dashboard.
Establish a department of experts without hiring a team
Hiring a team brings with it the burden of regular salaries, benefits, training programs, managing churn, and getting an office space, support staff, and equipment. By outsourcing to logistics outsourcing companies, you access a well-trained staff without hiring an in-house team and adding the overheads mentioned above.
Higher negotiating power
Lower cost of operations and the flexibility to increase or decrease the staff gives you access to surplus funds using which you can grow the business faster. A fast-growing logistics business with a strong customer base has a higher negotiating power with its suppliers which is one of the powerful cost-reduction strategies.
How can Infosys BPM help in logistics outsourcing?
Infosys BPM offers a comprehensive suite of logistics solutions tailored to meet your specific needs and growth objectives. With a focus on driving business outcomes and ensuring delivery excellence, their services encompass transport planning and execution, freight claims management, global trade management, analytics and design, compliance management, warehouse management support, logistics sourcing, and master data management.
Read more about logistic process outsourcing at Infosys BPM.