Warehousing Is An Integral Part Of Logistics Providing The Buffer Between The Production And Consumption Rate Of Flow

Warehousing Is An Integral Part Of Logistics Providing The Buffer Between The Production And Consumption Rate Of Flow

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Warehousing is an integral part of logistics providing the buffer between the production and consumption rate of flow (Jr., 2014, p. 173). Owning a warehouse is a costly capital investment as well as adding the on-going expenses of maintenance and staffing and being inflexible to changing environment. To avoid the capital investment and to increase the flexibility, a firm may look for different warehousing options such as contract warehousing known as 3rd Party Logistics (3PL) providers. 3PL may be favorable to some organizations as it reduces the negative effects of owning the warehouse while highlighting the benefits of public warehouse (Jr., 2014, p. 177). Such company as Ford reaped a great benefit through its collaboration with 3PL as its 3PL provider was able to bring 15% reduction in its inventory by streamlining its logistics network and purchasing practice (Blanchard, 2015). If hiring 3PL will answer all logistics issues, it would be no-brainer to all company dealing with logistical challenges—go hire 3PL. Just as any logistical tools, companies must bear in mind the effectiveness and efficiency of the relationship before hiring the 3PL. So, when does it make sense?

Leverage 3PL Core-Competency
3PL is not just warehousing. 3PL comes with industry best practice in all logistical functions including shipping. Because they specialize in logistics, they are the experts in logistics who are focused in logistics as their core-competency (Jr., 2014, p. 177). Because they are the experts in storing and moving the inventory, having a single source of logistical partner can often bring cost savings. Mike Wagner, while working for UPS, offered his customer what he felt a great rate only to find out that his client’s 3PL...

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...ddition to 3PL’s capabilities, a company seeking 3PL relationship must ensure that it has technological tools to take the full advantages of what 3PL can offer. If the firm looking for 3PL is not positioned technologically, then it is unable to make use of what 3PL offers. For example, if a firm is not capable of accepting electronic data, what good would all the information 3PL provides. The firm must ensure that it is capable of integrating with 3PL’s system to take full advantage of the services 3PL provides.
In addition, 3PL services do cost more than public warehousing as it is tailoring its service to meet its client’s customized needs. Therefore a careful cost-benefits analysis should be carried out to enter into such contract to ensure that the specialized logistical service is needed for the firm and there is a foreseeable benefit from such relationship.

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