Logistics Outsourcing vs. In-House: Pros and Cons

Supply chains have grown increasingly complex alongside global e-commerce. Managing supply chains requires efficiency and expertise from years of experience and costly investments in outsourcing or in-house management.

This blog explains outsourcing and in-house logistics to help you make the right decision for your company.

What Is Logistics Outsourcing?

Outsourcing logistics allows companies to hand over control and management of certain supply chain functions to a third party. Because the supply chain involves many working parts to ensure goods and materials reach their destinations, many companies struggle to manage everything from acquiring raw materials to completing final delivery.

Typically, companies hire third-party logistics providers to handle the steps they are unable to or prefer not to manage. Working with 3PL providers is common for larger companies with the revenue to support outsourcing, but it's also a common trend for all kinds of businesses. It's so common that the global logistics market was valued at $9.41 trillion in 2023 and is expected to grow to $14.08 trillion by 2028. 

Companies typically outsource activities, such as:

• Warehousing: Outsourcing warehousing logistics allows companies to store inventory in strategically placed warehouses before shipping. It typically includes inventory management, picking and packing and shipping and receiving.
• Inventory management: Inventory management ensures products are stocked and restocked at appropriate levels. It often considers tasks, such as preparing for historically busy sales periods and predicting future sales.
• Picking and packing: Goods stored in a warehouse have to be picked and packed to prepare for order fulfillment. The 3PL provider hires people who pick and pack the order as efficiently as possible, ensuring each parcel has the correct packing materials and shipping labels.
• Kitting: This service assembles certain shipments into a single package, which is common in subscription-model businesses.
• Reverse logistics: Reverse logistics handles the return process and is especially important from a customer service perspective. Outsourcing return logistics allows refunds to be processed quicker and handles returned products.
• Freight forwarding: Freight forwarding moves goods or materials through the supply chain. It includes important documentation and, on an international level, manages customs clearance.
• Full truckload and less-than-truckload freight shipping: These freight services allow inventory to be shipped based on volume, allowing companies to optimize their shipping options. FTL services work well for predictably large orders, while LTL adds flexibility by allowing companies to ship smaller amounts.

Companies often outsource their logistics to streamline their supply chain due to the scalability it offers. They don't have to worry about hiring and training seasonal staff during their busiest periods of the year. Thanks to the economy of scale, outsourcing is often more cost-efficient since 3PL providers usually serve several companies simultaneously.

Advantages of Outsourcing Logistics

Let's take a look at some of the benefits of outsourcing logistics. 

Reduced Overhead Costs

Companies often reduce overhead by outsourcing logistics. These processes take time and result in more payroll expenses on top of the cost of the services. When a 3PL provider handles logistics, companies eliminate additional payroll costs. If your company outsources its transportation logistics, you can cut the cost of maintaining a fleet of vehicles, saving money on fuel and maintenance.

Access to Specialized Equipment

Obtaining specialized equipment is often cost-prohibitive for companies, even if it boosts efficiency. Because logistics companies specialize in streamlining supply chains, they invest heavily in technology, systems and equipment to improve this process. The more products they can move, the more profitable their business becomes. Companies that outsource their logistics to 3PLs have access to this specialized equipment at a fraction of the cost. 

Focus on Core Operations

Companies have their own specialties and core competencies integral to their products. Many turn to outsourcing logistics to remove labor-intensive tasks that aren't part of their core competencies. By delegating that task to a company that specializes in parts of supply chain management, such as transportation or warehousing, you can focus on key production-related tasks that help your business grow.

Improved Customer Experience and Service

Improved customer service and experiences are key to your business' success. Many consumers stop purchasing from a company after poor service or negative interactions. When making a first impression after a customer makes their initial purchase, it's crucial to demonstrate reliability through accurate shipping estimates. Outsourcing logistics helps improve the customer experience by ensuring orders are managed efficiently.

Access to Specialized Expertise

Third-party logistics companies have specialized experience in optimizing supply chains. Transportation and warehousing require attention to detail and a deep understanding of best practices that most companies lack internally. Third-party logistics providers know how to identify problems in your supply chain and optimize them. 

Disadvantages of Outsourcing Logistics

While outsourcing logistics provides many benefits, it also has several disadvantages, such as:

• Loss of control over processes: Any time you outsource operations, you lose a degree of control over those logistics processes. For example, if you outsource warehousing, you have less say on how your goods are stored. However, 3PLs work for your company, so you can go elsewhere if a provider proves unsuitable. 
• Dependency on third-party providers: By outsourcing these processes, your company develops a dependency on 3PLs to ensure operations continue. Any disruptions of service with the 3PL can send your supply chain grinding to a halt, delaying order fulfillment and resulting in unhappy customers. 
• Communication issues: Adding more parties to your supply chain introduces the potential for miscommunications that can impact shipments. Different ideas and approaches to services can hinder productivity. 
• Limitations on customization: While some 3PL providers offer extensive customizable services to fine-tune supply chain logistics to specific companies' needs, others may have a limited selection.
• Risk of data breaches: Third-party logistics providers create an additional point for data breaches since they have access to sensitive data, such as payment details and customer information. If data breaches occur, your company could face legal penalties. Data breaches can also damage a company's reputation.

Choosing a reputable 3PL partner that aligns with your company's values and goals helps prevent these problems. Reliable 3PL providers implement robust security measures to reduce the risk of data breaches. They also offer transparency, contracts to protect both parties and open, responsive communication. The right 3PL provider for your company should provide services to address your logistics concerns.

What Is In-House Logistics Management?

In-house logistics involves a company managing its own supply chain operations. Companies with in-house logistics typically have management teams that oversee warehousing, transportation, inventory management and order fulfillment. Businesses with specialized needs or proprietary processes often prefer in-house logistics over outsourcing to ensure their supply chain is managed according to their standards.

Benefits of Managing Logistics In-House

Some companies prefer to manage their logistics internally. Typically, the benefits of in-house logistics outweigh the drawbacks for that company's supply chain. Key benefits of in-house logistics management include:

• Greater control: Companies that manage their supply chain logistics retain total control over the processes. They choose how to ship goods and where to store them. 
• Tailored solutions: Because in-house logistics ensures companies have total control over their operations, they can also implement innovative, tailored solutions designed specifically for their supply chain. 
• Better communication: With just one point of contact for key services, such as transportation and warehousing, companies opting for in-house logistics often benefit from better overall communication. This reduces the risk of disruptions caused by misunderstandings or misalignment of goals.
• Improved flexibility: Businesses can implement their own practices and workflows to streamline their logistics since third parties aren't involved in their supply chains. This allows them to freely adapt to changes in their supply chain, providing the ability to scale up or down as needed based on market trends.

While many companies turn to 3PLs to outsource tasks outside of their core competencies, companies that implement in-house logistics invest in their supply chain. As their teams develop stronger internal expertise, they can further align their logistics to facilitate their overall goals.

Drawbacks of In-House Logistics

In-house logistics don't work for every company. Some drawbacks of in-house logistics include: 

• Higher operating costs and resource demands: Operating in-house logistics leads to increased overhead. The team must be trained and paid for all upkeep and maintenance. Hiring a team to manage logistics internally adds more people to the payroll and may require extra training time or onboarding. Overall, in-house logistics can place heavy demand on companies due to the resources needed for total oversight and control.
• Continuous investments: Continued investment in infrastructure is necessary to maintain in-house logistics. Regular personnel training and adopting constantly evolving technology and infrastructure create ongoing expenses that may be cost-prohibitive for some companies.

In-house logistics works best for companies that need to maintain proprietary technology or standards during their supply chain processes. For example, Tesla manages its own warehousing, transportation and inventory so customers get the exact experience the company wants to foster. 

Key Considerations for Choosing Between Outsourcing and In-House Logistics

Ultimately, the decision between outsourcing logistics or maintaining them internally comes down to four considerations:

• Cost: In-house logistics may require a higher expenditure than outsourcing to a 3PL due to the increased need for employees, infrastructure and training. Companies lacking the profit margins to sustain their logistics internally often benefit from outsourcing to a 3PL for some or all of their supply chain management.  
• Control: Companies that value total control over their supply chain often benefit from investing in in-house logistics. Businesses that don't need complete control often outsource to free up resources for improving core competencies.
• Scalability: Partnering with a 3PL provider can result in better scalability potential for changing supply chains. While in-house logistics can also scale with a company, it requires increased investments on a larger scale. Companies that want to build and improve their business model or expand into wider markets or the international playing field often do better with a 3PL.
• Expertise: Expertise can be gained by investing in skilled staff and training. However, 3PLs provide instant access to supply chain logistics expertise. Companies with limited experience managing supply chains benefit from partnerships with 3PL providers.

Some companies choose a hybrid approach to their supply chains, outsourcing certain processes to gain a balance of control and efficiency. For example, they may partner with a 3PL provider for final-mile delivery or transportation between warehouses. This option allows for greater flexibility while enabling companies to maintain a similar level of control and oversight.

Find Logistics Solutions With Atlas

Both in-house and outsourced logistics services have their places in supply chain management. Companies can benefit from both options, but choosing the right one requires careful analysis of your supply chains and how each model fits into your business. Making informed decisions and weighing the benefits and drawbacks of each can help.

For further guidance on 3PL solutions, reach out to Atlas International. As a global logistics provider, we offer access to full-service 3PL services custom-tailored to your business.