Essay on Impact of Third Party Logistics on Reverse Logistics

Third party logistics (3PLs) refer to the process of outsourcing part or all of an organizations supply chain services to another business. Standard services that are outsourced to third party logistics providers include warehousing, inspection of products and transportation (Meade & Sarkis, 2002). Typically, third party logistic providers are involved in a wide range of operations which can be tailored to their customers needs. In most cases, the services offered by third party logistic providers go beyond mere logistics to include different value- added, as well as after-sale services. The aim of this paper is to discuss how third party logistics impact reverse logistics from the business perspective. The paper will also address the benefits and challenges associated with third party logistics.

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Impact of Third Party Logistics on Reverse Logistics

Reverse logistics refers to the flow of finished goods, raw materials, inventory and related information from the consumer back to the point of origin either for the purpose of disposal or recapturing value. It may involve the recovery of products from the distributor to the manufacturer or from consumer to the retailer and eventually to the producer (Bottani & Rizzi, 2006). The flow of used products back to the manufacturers is receiving increased attention due to concerns about consumer safety, environmental degradation, and product quality. The process of reverse logistics mainly focuses on ways of taking back whatever remains after a product has been consumed so that it can be remanufactured, recycled or reused economically and efficiently. Across many industries, reverse logistics is becoming a major component of business profits for manufacturers, retailers, and distributors.

Convergence of several forces appears to be influencing the need for third party logistics in reverse logistics. One of these forces is the quantity increase in customer goods returned as a result of improved efficiency in the recycling and remanufacturing of used products. Large companies have agreements with retailers and distributors allowing them to return used goods for reprocessing. Upon reprocessing, these products can be used to meet critical needs (Bottani & Rizzi, 2006).

To handle the process of reverse logistics more efficiently and effectively, companies may have the option of engaging the third party logistic service providers. The need for businesses to enhance competitive advantages, the increasing emphasis on excellent customer service, and the importance of focusing on core business functions have all resulted in the need to contract third party logistics (Kannan, Murugesan & Noorul, 2009). Therefore, the process of contracting third-party companies to provide services has many effects on the reverse logistic process. One of these effects is that management of return delivery of used products requires a dedicated infrastructure with special systems for tracking movements of goods from the end point back to the manufacturer. Companies involved in the process have to ensure that the reverse flow does not affect their normal supply chain operations. To achieve this, companies have to outsource services to experienced and well-equipped third-party logistics providers.

Another significant impact of third party logistics on reverse logistics relates to the providers capability to support their clients with the experience and expertise that would otherwise be difficult to obtain or too expensive to develop in-house. According to Kannan et al. (2009), the most common outsourced services in reverse logistics include inbound and outbound logistics, customs brokerage and warehousing. These services have given third party logistic providers the opportunity to invest in the reverse logistics market. Since the outsourced providers are specialists in the management of the reverse flow of products and information, as well as in performing critical value-added services, their role in the supply chain is indispensable (Efendigil, Onut & Kongar, 2008). Often, the outsourced service providers carry out their operations in more efficient and improved manner. As such, the outsourcing companies find the services of third parties as a cost-effective way of reducing operational and administrative costs.

Ravi, Shankar, and Tiwari (2005) note that third party logistics providers play a significant role in enabling companies engaged in reverse logistics to develop green supply chains. This is the case because they provide the opportunity for consumers to return used, defective or warranted products to the manufacturers for subsequent capturing of value. In effect, third party logistics providers play an important role in facilitating movement of products in bulk, which helps companies to save time and cost and enjoy the benefits of enhanced efficiency (Kannan, Shaligram & Sasi, 2009). With third party logistics, it is easier for companies to reach greater economies of scale in reverse logistics. Through economies of scale, companies enhance their competitiveness and efficiency in more or less the same manner as those engaged in forward logistics.

Pros and Cons Third Party Logistics

Third party logistics are advantageous to business organizations in that they allow for an experienced service provider to take care of the tedious task of managing the supply chain. Management of the supply chain process is labor intensive and often too costly (Hass, Murphy & Lancioni, 2003). By outsourcing some functions of the supply chain to third-party logistic companies, an organization does not have to worry about the repetitive steps involved in the sourcing, warehousing, and distribution of goods. 3PLs are highly specialized in their services. Therefore, a team of highly dedicated professions handles all tasks, meaning that company does not have to hire or train logistic professionals. This ensures that customers get the product and services they need in a professional and timely manner (Efendigil et al., 2008). Essentially, the only thing that the outsourcing company does is to track its inventory. Thus, the outsourcing company has enough time to focus on other important aspects of the business.

Another advantage of 3PLs is that they enable companies to save significant financial resources in the long-run. Third-party logistic providers can manage large quantities of inventories more efficiently than the outsourcing companies can do on their own (Kannan et al., 2009). In addition, the 3PLs process helps in reducing the different costs associated with the outsourced services. For instance, a company can outsource its shipping needs to warehouse providers, which will be responsible for storage and sorting of the products. This means that the outsourcing company will have to organize for transportation services. Since the 3PLKs providers are experts in their specialty, they can offer valuable services such as labeling and bar coding the products (Kannan et al., 2009). They can also help with electronic trading with large retailers. They access to and experience with latest technologies in logistics means that their services will be more organized and efficient, which is suitable for enhancement of competitive advantages.

The third advantage of third party logistics is that the process is highly flexible and convenient. This is because the outsourcing company only pays for the particular work that has to be done. This is especially important for businesses whose production is seasonal or those that do not wish to commit themselves to leasing a warehouse and hiring staff full time (Saen, 2009). The process is highly flexible in a company sends customers orders to the 3PL who dispatches the products specified in the order. At the end of the month or billing period, the company receives a single consolidated invoice for all the services rendered by the 3PL. Third party logistics are well positioned to get better trade discounts from transporters because they deal with huge quantities, which can be passed on to the company regarding reduced fees.

The greatest disadvantage of dealing with third party logistics is that the outsourcing company losses absolute control over the management of inventory. The outsourcing company relies on the reliability, honesty and competency of the 3PL and must assume that the contracted service provider knows everything that everything is being done the way it should be (Kannan et al., 2009). All outsourced tasks are done by the 3PL and therefore the company does not get to inspect or monitor important aspects or be in control of their goods. However, they can track incoming shipments, inventory levels, and deliveries. Since the business owner is not there to control how the services are managed, they take the blame for anything that goes wrong (Min & Joo, 2006). For example, if the 3PL delivers damaged goods to customers, the company that outsourced services will be blamed for that mistake and may even lose the client. Ideally, customers do not care who is responsible for delivering products to their premises. They are only concerned about getting their products in the specified quality and promptly. In strongly competitive markets, customers can quickly switch to other service competitors (Kannan et al., 2009). This underscores the need to embrace customer service excellence when outsourcing services to third-party service providers. In addition, it is important for companies that outsource their logistic services to establish distribution centers to avoid costly customer satisfaction issues. It is also important to warrant that the logistics team is well experienced with the particular type of services that are required.

The second disadvantage of 3PLK is huge initial investment costs. Depending on the type and nature of services that are outsourced, the third party logistics provider will have to redesign their business processes, facilities, and operations (Ravi et al., 2005). They may also have to retrain their employees or hire new staff with the particular skills required. All these costs have to be incurred by the company outsourcing the services. This will ultimately affect profitability for the company during the first few months, and if not managed well, it can hurt profit margins in the long run (Kannan et al., 2009). Instead of risking big losses in future, companies are better off to invest in their logistic or deal with quality 3PL providers to ensure a high rate of return and boost customer satisfaction.

Another disadvantage is that the outsourcing company and the third party logistics provider may not necessarily be based in the same location. Sometimes, they could be separated by hundreds of kilometers, which means that if a major problem occurs, it might not be solved promptly (Kannan, 2009). For example, if there are issues with product quality, the two parties can only communicate via phone or email, which might not be the best solution. Thus, the potentials for loss of information are very high. Similarly, if the client decides to change order specifications, problems may arise if the products have already been shipped. In competitive markets, allowing the third party logistics to be responsible for critical business functions presents immense risks. Their mistakes and inefficiencies reflect directly on the firm since customers may not accept passing the blame onto the contracted party.

Conclusion

From this discussion, it is evident that third party logistics providers play a major role in enhancing efficiency in the reverse logistics system. Third party logistics providers have extensive experience in providing a broad range of services related to both forward and reverse logistics. They help companies to save on administra...