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Logistics Costs
At a landed cost level, the first and most obvious benefit derived from working with a 3PL provider is in direct transportation expense. As mentioned earlier, the ability of the 3PL firm to offer discounted prices to the market is reflected in a company's cost of goods sold line on the income statement. While transportation and customs-related costs continue to play a prominent role in landed costs and cost of goods sold calculations, analysis of the logistics function will remain a major consideration for international companies.There are also several benefits to working with a 3PL firm when trying to control expenses below the cost of goods sold line. The greatest potential is found in payroll. When an organization operates its own logistics department, the model implies a fairly substantial investment in manpower. Whether discussing the executives and office personnel who monitor import/export logistics or the labor-intensive warehousing and trucking operations that must be operated, the cost is high and oftentimes fixed.The 3PL model, conversely, is inherently variable, driven by the volume of cargo moved with the designated service provider. Because the 3PL firm's costs are built into the rate structure offered to the customer, in practice payroll and other operating expenses shift to the 3PL firm. In more evolved relationships, clients have enlisted the services of "in-house" personnel from the 3PL firm. In such cases, the 3PL firm provides employees to work at the customer's location, facilitating and oftentimes running the entire logistics operation. This practice is not meant to suggest, however, that an organization divest itself of its own human capital. As is more consistent with lean thinking, smarter companies will retain an element of their international talent pool to work with suppliers on managing relationships and continuous improvement initiatives. If a company does not have a commensurate amount of global experience on staff, it may compromise internal communication channels, miss shared learning opportunities or simply become too dependent on a service provider.Next to payroll, the most prominent operating expense for international players is communication. Even with e-mail and instant messaging, there is a colossal number of telephone calls and faxes moving across supply chains to the point where communication can consume up to 15 cents of every gross margin dollar. This is not small change to companies, and the ability to use 3PL firms to communicate on their behalf is a feature of the relationship with which customers are quite happy. That "extra set of eyes" quickly becomes a vehicle for international communication, saving customers the time and expense of addressing logistics-related issues with clients, suppliers and strategic partners around the world.
The more one delves into the operating model of a 3PL firm, the more one should recognize the potential to remove waste, improve operations and enhance visibility in all of his or her operations. The 3PL relationship does require an investment in time and resources to maximize performance. However, the benefits that accrue to the customer in operational effectiveness and, hopefully, financial performance far outweigh any short-term expenditures.
