Business process outsourcing is the process of appointing a third party to undertake the activities of a business entity. Most of the companies, irrespective of its size and capital structure are outsourcing some of their core and non-core activities to third party firms. This is because outsourcing can help in improving the focus of the business in their expert divisions. Presently, many business units are outsourcing their logistics activities to third parties. While some of them are only delegating these activities partially, others are handing over the full responsibility of logistics to third parties. Some advantages of outsourcing logistics to third party firms are as follows.
Logistics is a department of an entity that is responsible for the assembly of raw materials, and the distribution of finished goods. The secondary packaging and storage of finished goods are also the duty of the logistics division. Therefore, to undertake all these activities, a large number of human and material resources are necessary. Since it is a primary activity, if a business is setting up an in-house logistics division, it will have to spend a large portion of its fixed and working capital. On the other hand, if they are handing over these activities to a third party, there will be not be much financial burden on the entity.
One of the biggest advantages of outsourcing logistics is that they have a better knowledge of those activities. Since they are focusing only on logistics, they will have the expert knowledge to reduce the cost and increase access to different markets. It is possible for a normal business entity to set up an effective logistics division by appointing experienced personnel. But it is not advised as it will incur a huge cost on the capital. In short, hiring a third party for logistics is good for a business as it will allow them to utilize the expertise of the third party firm.
As mentioned earlier in this article, setting up a logistics division will require many material and human resources and it will incur huge costs on the capital of the entity. After setting a logistics division, making changes is difficult as it will increase the expenses. On the other hand, if an entity is outsourcing these activities, they can make changes easily. If the entity is not satisfied with the working, they can even consider appointing another firm for the same task.
The above mentioned are some advantages of outsourcing the logistics operations of a business. In addition to all these advantages, the entity can spend their time, money, and space to other activities if they are outsourcing logistics.