Freight Logistics Software Vs Third Party Logistics: Which Is Better?

Today, two types of freight solutions appeal to shippers that rely on carriers: logistics software (a.k.a. TMS software) and third party logistics (3PL). Logistics software allows shippers to become their own logistics provider by using a software program, while 3PL providers negotiate arrangements between shippers and carriers. Frequently compared and contrasted, logistics software and 3PL each offer unique benefits. However, the former has the following important advantages:

Less Expensive

Standard 3PL providers and service developers, which offer particular services and not comprehensive solutions, are usually quite affordable. When you hire a provider that offers innovative management of the shipping process – namely, a customer developer – the cost can compare to hiring an in-house logistics department. Logistics software provides logistics through a software as a service (SaaS) platform. It can also be implemented as an in house solution. Instead of relying on a costly customer developer, you can save money and realize more control by using a software solution.

More Control

A top complaint of 3PL customers is they feel distanced from their shipping process and the entity that manages it. Different 3PL providers have different approaches, but few of them integrate the shipper in the shipping process in a formal capacity. For some shippers, having the shipping process fully managed by another entity is appealing. Due to its expense and vendor issues it involves, most shippers wish to be involved in the process. Freight logistics software does more than “involve” shippers in their own shipping process; it puts them in control of it.

Better Options

3PL providers make freight arrangements by listing an available load in an electronic posting system, where it can be matched with an available carrier, or by negotiating with carriers that don’t use a posting system. Because the former method is usually the easiest, many 3PL providers use it to arrange the largest percentage of shipments – a scenario that limits shippers to carriers who use a posting system. Logistics software removes this barrier and exposes you to more carrier options. In some instances, a shipper misses the best carrier option because the carrier who could provide it will not work with the shipper’s 3PL.

Greater Security

No shipping process is as secure as one that the shipper handles on its own. When outsourcing to a 3PL, shippers naturally lose the capacity to scrutinize the carriers with which their loads are placed. Although 3PL providers select carriers with the customer in mind, they also select them with themselves in mind – a dichotomy that can jeopardize the interests of shippers. Freight logistics software alleviates security concerns by putting you in control of the shipping process.

Conclusion

Logistics software is a viable replacement for 3PL, particularly for shippers who wish to control their own shipping process. Next to payroll, shipping is the second largest operating expense for most shippers. This means that rejuvenating a stale shipping process with better carrier options can have a significant impact on a company’s bottom line – an impact that logistics software allows you to achieve.

Logistics Software Solutions Vs Hiring a Parcel Rate Adjuster

Parcel carrier rates aren’t designed to help your company reduce shipping costs; they’re designed to support the profits of parcel carriers. You won’t hear it in their advertisements, but parcel carriers have an inflexible set of standard rates that give the appearance of flexibility due to a set of pricing algorithms that determine how the rates are applied. So, how do you keep your shipping system from being a financial casualty of the parcel carrier system? The first step is a simple: avoid being convinced that one parcel carrier is somehow “better” than the rest. When people arrive at this perception, it’s often in response to advertising ploys that promote notions of a carrier’s “nobility” via its selfless dedication to the customer.

When businesses become dedicated to one carrier, they typically stop shopping for better parcel shipping rates and end up paying for services that they don’t need. Therefore, step two of assuring that your company gets the best carrier rates is either having a parcel rate adjuster investigate your situation or implementing transportation logistics software. Both transportation logistics software and parcel rate adjusters offer extensive logistical information that reveals fair courier rates for a variety of shipping situations, including the comparative analysis of fuel surcharges between carriers and audits of shipping fees that uncover breaches in service, such as non-delivery of services or service delivered too late. Logistics software and rate adjusters also determine whether your company is being charged for services that it simply doesn’t need, such as residential delivery or Hazmat shipping services.

When you consult logistics software or a reputable rate advisor, you can expect to receive detailed questions about what you ship and how you go about shipping it. In each case, cost savings suggestions are often simpler than expected. For example, a Philadelphia law practice was able to save $15,000 a year in shipping costs by determining when parcels were expected instead of sending every parcel overnight. Why didn’t the firm do this in the first place? In the legal profession, the “importance” of legal documents leads to the perception that they need to be delivered as quickly as possible, even when they don’t. Similar to seeing through advertising ploys, simply seeing through the trends in your business area can result in significant parcel savings.

Arriving at the best shipping plan for your business involves selecting the shipping options that meet your specific needs and then finding them at the best price. While some companies choose to consult with a rate advisor, other companies choose to implement logistics software and save money. In addition to being more cost effective than hiring a parcel rate adjuster, logistics software solutions arrive in a shorter period of time and are always free of human error. If you suspect that you’re paying too much for parcel shipping or you haven’t compared rates in awhile, why pay even more by hiring a parcel rate adjuster when logistics software solutions can offer you more dependable results in a shorter period of time and at a lower cost?

Operating a Transportation Management System Using Logistics Software

A Transportation Management System (TMS) is an element of supply chain management that is positioned between a company’s Enterprise Resource Planning (ERP) system and its shipping process. Ultimately, the system ensures that a company’s resources are invested in the best transportation process for its freight, one that offers the best combination of freight care, delivery time, and delivery cost. Supporting the system’s management function is a logistics resource, typically either (a) an in-house logistics department, (b) a Third Party Logistics provider (3PL) or (c) logistics software. How well the system works – and the style of management it offers – depends largely on the logistics resource.

Evaluating Logistics Resources

Most shippers prefer to have logistics performed in-house. Traditionally, this requires hiring experts – something that is common among large, high volume shippers that have a transportation fleet, but not among small to medium size shippers that don’t have a fleet. For these shippers, the traditional alternative to hiring experts is contracting with a 3PL provider – an arrangement whose value depended on the practices of the 3PL provider. For many companies, 3PL providers present three problems:

  • They make the transportation management process seem distant
  • Their load pairing strategies aren’t based on the broadest options
  • Their highest level of transportation management can be unaffordable

In recent years, logistics software has provided shippers with an alternative to high level 3PL, one that is capable of managing the shipping process and discovering better shipping options as they arise. In addition to costing less than a 3PL provider that manages and innovates the shipping process (i.e. a customer adapter), the software lets shippers take control of their TMS by facilitating three functions that a good TMS should facilitate:

  • Planning the shipping process. A TMS should plan the shipping process according to the shipper’s parameters, which include such things as LTL rates, delivery time and warehousing fees.
  • Monitoring the shipping process. A TMS should monitor the shipping process in an administrative capacity, handling such things as transport alerts, customs clearance and invoicing.
  • Measuring Key Performance Indicators (KPIs). Without the consistent, accurate measurement of KPIs, a shipper can persist with shipping options that don’t offer the best value.

Logistics software can facilitate these functions, allowing shippers to have the logistics function in-house without investing a significant amount of capital to have it there.

Conclusion

Companies that ship products need an effective transportation management system, which means that they need a comprehensive logistics function. Traditionally, shippers have acquired this function by hiring in-house experts or contracting with a 3PL provider. Today, however, logistics software gives them the opportunity to have the logistics function in-house without paying a premium to have it there.

For small to midsize companies, hiring in-house experts can be cost prohibitive, and contracting with a 3PL provider can bring the feeling of being disconnected from the shipping process. Logistics software can resolve both issues by offering a complete logistical function on a Software as a Service (SaaS) model.