What is Contract Logistics? Everything you need to know
It’s an internal process to manage the supply chain’s resources operation. You define where products need to go, where commodities would be housed, and what methods the commodities would take to reach their destination.
Just consider what is needed in a typical supply chain and how you would handle those assets, while sketching out each step.
In this article, we will discuss Contract logistics, its process, the difference between Contract Logistics and Warehousing, and its benefits.
Understanding the complexities of logistics outsourcing may be difficult with various kinds of third parties. Optimized logistics platforms are primary performance factors in terms of time to market and cost-effective logistics.
What is Contract Logistics?
Here is the definition by investopedia
“Contract logistics is the outsourcing of resource management tasks to a third-party company. Contract logistics companies handle activities such as designing and planning supply chains, designing facilities, warehousing, transporting and distributing goods, processing orders and collecting payments, managing inventory and even providing certain aspects of customer service.“
What Is The Contract Logistics Process?
Because of the growth of on-demand logistics, contract logistics have grown fast, although they are sometimes mistaken with 3PLs, which provide a different set of functionalities. While some people use these phrases identically, they might imply separate things.
The outsourced logistic partner will become involved in your business, collecting information about all types of distribution and logistical data to ensure that everything runs smoothly and successfully.
The logistic partner is in charge of receiving your goods, delivering them on schedule and to the correct destination, as well as managing any issues and completing the task.
You do not need to purchase shipping fleets, warehouses in several locations, or other infrastructure.
It is beneficial:
- To attain better client service
- To gain access to global competencies
- To improve adaptability
- To take scale economies.
When a fourth party joins the logistics process, a new handling protocol for the products is formed; this is a supply chain in which service has a direct influence on the operation’s outcome.
This approach solves a host of concerns:
- Production Line
- Warehousing
- Distribution Plan
- Inventory Management
- Final Distribution
What Is The Difference Between Contract Logistics And Warehousing?
Therefore, contract logistics encompasses a far larger range of services than warehousing and distribution. Contract logistics is the process of outsourcing resource management tasks to a third-party enterprise.
Warehousing is another word for warehouse. It is a business structure where items or raw materials are kept for use in manufacturing or selling. A warehouse serves as a central place for receiving, storing, and distributing raw materials and completed items.
On the other hand, Logistics has two sides: the inbound and outbound movement of goods. However, logistics is largely concerned with the movement of commodities (both raw and completed) in or out of a warehouse. Transportation, internal movement, inventory, and any other kind of important information are all handled by logistics.
Who Are the Contract Logistics Providers and What Do they Offer?
Logistics management is an important aspect of the distribution network since it guarantees the efficient and successful delivery of supplies worldwide. With multiple kinds of logistics management, it can be difficult to grasp what each entails and which form of logistics provider is ideal for your business.
There are different kinds of logistics providers, we have mentioned below:
1PL → First Party Logistics
2PL → Second Party Logistics
3PL → Third Party Logistics
4PL → Fourth Party Logistics
5PL → Fifth Party Logistics
First Party Logistics
Instead of using a professional logistics business, the 1PL technique is applied. It may appear to be an effective technique of addressing needs, but it is labor, time, and resource-demanding, and it necessitates the use of personnel with particular expertise and experience.
Second Party Logistics
The term “secondary logistics provider” refers to people who own the means of transportation. Owners of airplanes, ships, and trucks are included. These modes of transportation are then deployed to transfer goods from one point to another, whether across the country or throughout the globe.
Third Party Logistics
If you need someone to handle all parts of the supply chain, the 3PL firm is your best bet. Outsourcing will guarantee that distribution, supply chain, and customs laws are all met, sparing your money and effort.
Fourth Party Logistics
The 4PL providers are analogous to 3PLs in that you may outsource your operations to them for a comprehensive supply chain management solution. They vary somewhat in that they apply all of their infrastructures, allowing them to provide considerably more planned and customized solutions.
Fifth Party Logistics
5PL firms are often preferred by individuals in the e-commerce industry. They design and execute a fully customized network for businesses, integrating stuff effectively to achieve efficiency and client contentment.
Contract Logistics Vs 3pl Vs 4pl
Services | Contract Logistics | 3PL | 4PL |
Delivery Management | ✓ | ✓ | ✓ |
Inventory Management | ✘ | ✓ | ✓ |
Warehouse Management | ✘ | ✓ | ✓ |
Order Fulfillment Flexible | ✘ | ✓ | ✓ |
Real-Time Shipment Tracking | ✘ | ✓ | ✓ |
Tech Integration Availability | ✘ | ✓ | ✓ |
SupplyChain Integrator | ✘ | ✘ | ✓ |
What Are the Types of Contract Logistics Services?
There are multiple types of logistics services are provided by various Contract Logistics providers few are mentioned below:
- Warehousing
- Reverse Logistics
- Inventory management
- Transportation and freight forwarding service
- Order Processing Management
- Consulting and Custom Clearance
- Quality management
- Insurance
- Spare part logistics
- eCommerce logistics
- High-Tech Logistics
- Pharma Logistics
- Production Logistics
What Are the Types of Logistics Management?
- Supply Chain management
- Freight Forwarding
- Warehousing and Distribution
- Transportation
- Production
- Reverse Logistics
What Are The Benefits Of Contract Logistics?
The primary advantages of choosing a contract logistics business is that you are able to procure expertise that save money, either in terms of time or capital, by eliminating the need to develop costly equipment and infrastructure.
The benefits contract logistics are:
- Effective warehouse management solution.
- Logistics management from origin to destination.
- Complete certification for free zone transshipment
- Storage facilities for hazardous materials, perishables, temperature-controlled logistics, and excessive transportation
- Barcode technology, pick and pack, inventory control, labeling, stock, and storage management are examples of value-added services.
What Is An LLP And What Do They Do?
Lead logistics providers (LLPs), also known as fourth-party logistics (4PL) providers, play a significant role in the supply chain.
The function of an LLP generally includes monitoring and analyzing huge quantities of data, monitoring transportation management, handling other 3PLs and transportation service carriers, overseeing warehouse management, or controlling some other section of the distribution network.
What LLP do?
An LLP, like a 4PL, uses its high level of visibility, real-time information, communication capacity, and broad knowledge to align 3PLs, customers, and service providers. They also manage:
- Transport operations optimization.
- Organize suppliers.
- Bring supply chain innovations together.
- Inbound and outbound logistic flows should be synced.
- Modeling and management of distribution channels
How To Choose A Contract Logistics Partner?
Your logistics, customer service, and capacity to react to change may all be made or broken by the right partner. It is a big risk to entrust someone with sales, stock, and other personal data.
Remember that contract logistics includes more than just getting the goods from the manufacturing line to the warehouse and the end-user. It also requires handling all contracts with raw material procurement, manufacturers, contract warehousing providers, distributors, and consumers efficiently.
Contract logistics could be the right alternative for your business if you wish to extend your production process into other countries, all the while reduce your capital expenditure, or if you need a more durable and adaptable supply chain and warehousing solution for raw materials and finished goods. Contract services can provide solutions to optimize your resource management processes while cutting costs and making it more efficient.
Why Choose Us?
Al Sharqi has been more than just a freight forwarder in the industry, as we provide end-to-end logistics solutions to business of all sizes. Our services comprises of transportation, storage, and trade solutions to get your cargo to the desired customers.
Our attention to detail and unique solutions has proven to be effective for many businesses in the UAE.
Final Thoughts
It might be difficult to decide whether or not to outsource your logistic services. However, with the rising supply chain costs, rising e-commerce as distribution channel, changing government legislation, and the continuous introduction of new technology, doing it all on your own is becoming increasingly difficult.
Our customer service team is happy to assist you with planing your next booking.
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