CONTRACT LOGISTICS - OUTSOURCING AND FULFILMENT LOGISTICS

Contract logistics (also third party logistics or 3PL) characterizes a long-term cooperation between a company and a logistics service provider based on the division of labor. By concluding a contract logistics agreement, the logistics service provider takes over the supply chain management of the outsourcing company and thus becomes the link between the participants in the value chain instead of the client. The contract logistics provider adapts directly to the individual challenges of the customer.

The core tasks of contract logistics include the execution of central basic logistics functions such as warehousing, handling, order picking or transport, combined with the provision of individual value-added services. But also warehousing concepts for every requirement – from pure warehousing to cross docking and returns processing.

The objectives of a contract logistics agreement include the optimization of intra-, distribution- and transport logistics processes, the professionalization of supply chain management, the development of logistical flexibility while reducing operational or market-induced performance risks, secure fulfillment for customers and the sustainable use of logistics and IT structures already in place at the service provider. The bottom line is to reduce logistics costs while improving logistics performance and thus increasing the profitability of the outsourcing company.

By outsourcing its logistics to a competent service partner, the company can concentrate more on its core competencies. At the same time, it can benefit from the service provider’s special expertise and better access to resources such as land or transport capacities.

As the outsourcing company’s contractor, the contract logistics service provider is responsible for ensuring compliance with all relevant legal requirements. At the same time, it is the outsourcing company’s responsibility to ensure the use of up-to-date, innovative technologies in terms of building services and facility management, warehousing, vehicle technology and IT.

The service package, with its high degree of customization, ensures lean, efficient fulfillment of logistics and logistics-related functions that can be migrated over time. Thanks to the availability of logistics space, fleet equipment, means of transport, and IT structures, the logistics service provider is generally in a better position than the customer to respond quickly to growth or workload peaks – and thus to meet its responsibility for reliable maintenance of merchandise management cycles in seasonal business, for example.

Contract logistics can involve both logistics services, such as shipment tracking or customs clearance, and logistics-related value-added services, such as automated parts processing, assembly activities, goods preparation or returns management.

Trust arises from experience, reliability, conduct, references and reputation. For the customer, trust in the contract logistics service provider is important because it does not receive a concrete “product” when the contract is concluded, but instead places a vital basic operational function completely or to a large extent in external hands – and at the same time binds itself contractually over a longer period of time. In addition, the degree of individualization of the contract logistics service package is often so high that a change of service provider at short notice is hardly possible, also with a view to maintaining a reliable supply chain.

Concluding an outsourcing contract with a logistics service provider is not a bet on the future, but it is nevertheless a considerable leap of faith that the contractor must subsequently earn. Fairness in the drafting and interpretation of the contract as well as in the behavior after the contract has been concluded, open communication, not exploiting contractual and factual barriers to change for the outsourcing company, building up personal experience in different hierarchies of cooperation, acting at eye level in possible renegotiations without exploiting a possible advantageous position, agreeing on performance level agreements and reviewing them on the basis of key performance indicators or regular, continuous improvement processes – all this is suitable for building up corresponding trust capital.

Contract logistics reference solutions and the development of the contract logistics service provider’s reputation are suitable indicators for anticipating this trust capital and placing the decision of the logistics outsourcing company in favor of a 3PL provider on a solid foundation.