Tuesday, November 29, 2011

Role of 3rd party service providers in Logistics

Transportation is an absolute critical aspect of business that eats up a major chunk of the profit. In such turbulent times where fuel prices are soaring, businesses are looking at cutting down costs and providing high quality services, the role played by transportation companies is highly critical.

As supply and distribution chains have become longer and complex businesses have begun to realize that increased transportation costs can reduce the benefits of manufacturing where labor is cheap. The congestion and bottlenecks of a transportation network adds to the woes and has a huge impact on businesses.

While reading the "The Threat of Global Gridlock" article a question that touched my mind was why not utilize the existing network of 3rd party logistics giants such as Fedex, UPS and aim at cutting down the underlying costs of transportation. These organizations already have an excellent air and road network that spans the entire globe. Businesses can leverage this network and improve their supply chain mechanism and cut down on inventory and overstock costs.

Companies like Fedex, DHL and UPS have an effective network infrastructure that can help businesses avoid some of the degenerating effects of transportation congestion and bottlenecks. Although, these companies are not into sea-based transportation , but their air/road network can be used to transport some critical components and help businesses to reach out early to customers.

Moreover, these companies have a very good presence through out the world. As manufacturers are trying to move to newer lands where the labor costs are not soaring, a tie-up with logistics giants like Fedex, UPS can help businesses in the distribution and transportation of goods without any extra overhead.Businesses need not worry in setting up a transportation channel while moving to newer lands, and can transfer the burden to logistics companies.

This presents a major strategic opportunity for businesses and can have a size-able impact on  profitability and help them build a rapid-response supply chain.

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