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Advantages and Challenges of Third-party Logistics Transformation

There is a sentence in the definition of 3rd party logistics, “Because the business volume of a single customer is relatively large, the general contract terms are determined by the demander.” In a more familiar phrase, “big companies serve small customers, and small companies serve big customers.” The small company here refers to the contract logistics company.

Because of this feature, 3rd party logistics companies have limited voice in front of cargo owners, and cargo owners will inevitably shrink logistics costs due to their own cost pressure. Moreover, because of this feature, 3rd party logistics is highly dependent on customers, making it more difficult to emerge large-scale enterprises and lower investment returns. This has also led to relatively few financing incidents in the field of contract logistics.

  1. The core competence of a 3rd party logistics company

The core competence of a 3rd party logistics company is the overall solution. We can split it into two parts to understand.

The first part is the ability to convene resources. The Institute of Transportation Union believes that the essence of 3rd party logistics is the outsourcing of enterprise logistics business. The cargo owner hopes to solve all logistics needs through a logistics company. What 3rd party logistics needs to do is to provide more and better services to meet the needs of suppliers. With the development of the market, the outsourcing of logistics requirements will develop into the outsourcing of all non-core businesses, and this is the essence of the supply chain.

The second part is the ability to further reduce costs and improve efficiency through technology and management methods after convening resources. The so-called outsourcing is to let professional people do professional things. The cargo owner does not only need a “contact person” when handing over the logistics business to the contract logistics company, but hopes that the 3rd party logistics company can further reduce costs through its own professionalism.

As the consumer demand of the customer market is transmitted upstream, fragmented and personalized customer needs are increasing, which also leads to the need for 3rd party logistics companies to provide more flexible solutions.

Thirdly, the development of 3rd party logistics moves with the owner of the goods. Many cargo owners of 3rd party logistics are trying to do omni-channel and digital transformation, which also puts 3rd party logistics companies facing a lot of pressure-one is to break the information island within the enterprise, and the other is to break the business-to-business relationship.

Finally, in recent years, the 3rd party logistics industry has ushered in a large number of participants, just as there are more wolves and less meat, and pressure comes naturally. Of course, the business models of these participants are not exactly the same, but we believe that the entry of network companies is very threatening because they have everything.

Traditional 3rd party logistics companies have strong first-hand cargo organization capabilities, which are in line with the positioning of the network freight platform; next, traditional third-party logistics companies may occupy the bulk, and integrate transportation capacity and expand market share through the platform. In the future, it may usher in a wave of transformation from traditional 3rd party logistics companies to network freight platforms. However, they are good at organizing goods, but they are still short of hard targets.

  1. Challenges that 3rd party logistics may face to

3rd party logistics companies do not mean that they can be transformed by transforming a car-free carrier. They will face the following challenges:

  1. High development cost
  2. Interconnection channels are unavailable
  3. Difficulty in financing and scaling up
  4. Data supervision fails to meet national compliance requirements
  5. The platform construction cycle is long and the capital investment is endless

With so many challenges, is it still transforming? And one has to admit that even if traditional 3rd party logistics companies transform into an online freight platform, they will be accustomed to using traditional self-service and non-platform management thinking, resulting in weak operating capabilities, single functions, and low service quality. In the process of transformation and upgrading, there must be many unknown and limited factors. In such an environment, only the means of refining one’s own business combined with the network freight platform can occupy its own position in the entire industrial chain.

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