Outsourcing Distribution to a Third Party Logistics Provider Relying Upon Cost Savings Criteria

Abstract

Outsourcing logistics areas is widely regarded for the last decades as auseful approach to reducing costs and gaining competitive advantage.Thus, the strategy of employing third-party logistics (3PL) providers’services has attracted growing interest. Many studies have been dealt withthe advantages and disadvantages of outsourcing warehousing andtransportation areas to 3PL providers, however, few of them make anattempt to quantify analytically the potential savings expected by handingover these logistics activities to 3PLs. This paper tries to reveal where thesavings could be derived from. It will be demonstrated that savings occuralmost evidently involving the 3PL provider into the development ofdistribution. It will be shown that these savings are a function of thenumber of the suppliers who outsource their distribution to the (same) 3PLprovider and that this number has probably an optimum value.