What is Contract Logistics? Why & When Should You Need One?

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With so many third-party logistics support providers vying for your attention, it can be difficult to recognize the advantages and disadvantages of logistics outsourcing. However, if you are fully prepared to offload, it’s vital to grasp the basics of 3PL logistics solutions, including service offerings, functionality, and responsibilities of various logistics providers so that you can partner with the best ones only.

Contract logistics has evolved rapidly in response to the sudden increase in demand for on-demand logistical support, but they are frequently confused with third-party logistics providers (3PLs), which offer a distinct set of capabilities. While some people use these phrases interchangeably, they actually refer to completely different things. We will discuss the distinctions between the two in detail in this article, as well as what you should know before outsourcing your logistical functions to a third party.

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What is Contract Logistics?

Previously, managing your supply chain’s resource operations was an internalized process within the company: you selected where things needed to be delivered, where products would be housed, and which pathways the products would take to reach their destinations. Contract logistics will now take care of a lot of these activities for you.

Contract logistics firms, which may be referred to in a variety of ways, from consultancies to freight forwarders, specialize in different aspects of the supply chain, from manufacturing to delivery management. Contract logistics often do not ship or handle inventory or fulfillment, but rather assist with regional and overseas freight forwarding. For instance, they verify that e-commerce product is delivered to the appropriate locations across the distribution chain and serve as a liaison between shipping firms and online merchants.

This is an example of what this may look like for your firm. You collaborate with research and innovation teams to identify the design of a product and the optimal materials to employ. Following that, you must determine which providers will provide the best materials at the most affordable prices. In addition, your business should decide who will manufacture the finished products.

When these initial steps are completed, it will be your operations department next or a manufacturer who will sign an agreement (contract manufacturing) outlining the process by which the items will be manufactured and the quantity to be delivered. Following that, you build or rent warehouses for product storage and distribution for order fulfillment.

Finally, you identify important retailers or online merchants who will showcase the items in their stores and target consumers for potential sales. While considering each link in the supply chain from beginning to end, you must plan transportation routes and choose the optimum mode of transportation – train, truck, ship, or airline – to use between each location.

Contract logistics involves outsourcing all of the work associated with resource management to other organizations. The contract logistics partner – who is sometimes interchangeably referred to as third-party logistics (3PL) provider – will manage the movement of the goods from the production process to the fulfillment centers, and eventually the delivery to the end-users.

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Contract Logistics vs. 3PL

What are the differences between a contract logistics firm and a third-party logistics provider? While they are sometimes misconstrued for the same thing, third-party logistics providers and contract logistics firms may provide wholly distinct or even complimentary services.

While contract logistic businesses normally assist in the arrangement of transportation and routes. 3PLs offer a whole suite of logistics services, ranging from warehousing and order fulfillment to managing inventory and automated shipping.

Most 3PLs maintain multiple distribution centers simultaneously, allowing businesses to:

  1. Distribute goods between distribution centers
  2. Allocate inventory depending on demand
  3. Real-time inventory visibility

Third-party logistics providers are ideal logistics partners because they give flexibility and insight into your e-commerce distribution network while providing technological connections with e-commerce platforms (from managing inventory to freight shipment), thus, allowing end-to-end online business solutions.

Simultaneously, a contract logistics business can prove to be very helpful in managing the transportation for your consignment from a manufacturer to a 3PL, but a 3PL normally handles transportation for orders directly by the carriers.

1.

Inventory Control

In contrast to contract logistics businesses that focus solely on delivery and transportation, the software of a technology-enables 3PL includes built-in inventory management, making it simple to track inventory data, manage SKUs, and assess inventory performance and business efficiency.

By calculating SKU velocity using previous order data, you can estimate consumption and have a clearer sense of when it’s time to refill inventory. Having greater oversight over inventory management guarantees that you have sufficient inventory to satisfy demand while conserving storage, reducing the likelihood that you will overpay for carrying expenses due to dead stock.

2.

Management of Delivery

Contract logistics is an excellent option for monitoring delivery management operations. However, 3PLs with numerous fulfillment center locations may assist companies in allocating inventory depending on the highest demand areas.

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Why & When to Use Contract Logistics?

Depending on the specific services required, the size of your organization, and your funding, a contract logistics partnership may be utilized to assist with any of the various steps involved in the supply chain management or for one-off solutions.

Utilizing a contract logistics business may be useful if you are ready to do everything else on your own – choosing and packing orders, monitoring them, managing your own storage, and managing the warehousing. On the other hand, if you have sufficient time to promote your business and manage the logistics associated with order fulfillment, a contract logistics firm may be the appropriate fit for you.

When Does it Become Necessary to Hire a 3PL Provider?

If you’re finding that the bulk of your time is spent managing your logistics and distribution operations, the ideal answer for you is to outsource order fulfillment to a third-party logistics (3PL) provider. Because 3PLs offer a breadth of supply chain efficiency solutions, you can relax by outsourcing logistics activities to your partners and save labor and other costs while increasing your supply chain efficiency.

Additionally, 3PLs offer the infrastructure, technology, experience, and support essential to maintain a competitive edge and exceed consumer expectations for rapid, economical, and smooth deliveries – all of which benefit your bottom line.

Types of Contract Logistics Services

Storage, transit, distribution, shipping, and receiving are the five critical skills every 3PL must possess. Although small-scale 3PLs may provide faster response times, more flexibility, or specialization in a particular field or location, larger 3PL providers are able to offer a more comprehensive suite of services and worldwide access. They can specialize in any of these selected areas.

Contract logistics providers often tend to specialize in the distribution aspect, providing different kinds of support in areas like consultancy, freight forwarding, air exports, and more.

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How to Choose the Right Contract Logistics Provider?

Choosing the right 3PL partner might spell the difference between success and failure in terms of infrastructure, customer support, and capacity to respond to changes in demand. Trusting someone with your transactions, inventories, and confidential data entails substantial risk. With the rise of e-commerce businesses, startups specializing in on-demand and cloud-based warehousing are gaining traction today.

Companies such as Waredock, Flowspace, and Flexe allow businesses to use storage space according to seasonal demand, rather than entering into long-term leases for a set space. Stord, Flexe, and Fl owspace are just a few examples of businesses driving online retail success. This puts current conventional contract freight forwarders in a difficult position. You should ask questions that revolve around their performance trajectory, the number of warehouses they operate, any delay compensations, and the presence of an NDA.

At Logos Logistics, we take pleasure in providing industry-leading freight brokerage, transportation, and automotive logistics services. From 3PL warehousing to e-commerce order fulfillment to contract logistics, we help you reduce operating costs, supply chain complexities, and unnecessary risks that might undermine your logistics operations. To know more about our game-changing logistics solutions, please contact and talk to our contract logistics experts today!