To understand what a logistics service provider is, we need to first know what logistics refers to. There has been a misconception that ‘logistics’ simply means ‘transportation’. That is far from the truth.
Logistics has a wider scope than just handling transportation. It plays a critical role in the supply chain industry. Being a large field of its own, logistics service providers can be broken down into several categories.
In this article, we also discuss other aspects such as components of logistics, the types of services offered, the activities carried out in logistics, and tips on how to choose the correct type of logistics service provider to suit your needs.
Simply put, logistics service providers are companies which specialise in providing logistics services as its core business. Some types of logistics service providers are capable of not just transporting goods, but also offer warehousing and packaging services. In other words, ‘handling’ the goods.
What is logistics in simple words?
Historically, it was used to describe the movement of supplies and equipment to military troops. Today, logistics is used in the business sector to refer to how resources are handled and transported to the final destination.
Manufacturers rely on logistics to move materials to their factories and their end products to their customers. Due to the growing prominence of e-commerce in the world, logistics has become a critical part of the supply chain. The speed and efficiency of logistics plays a major role in maximizing customer satisfaction, whether it is B2B or B2C.
Is logistics the same as transportation?
No. Although some have thought of logistics as being synonymous with transportation, that is incorrect. Transportation only deals with the use of vehicles to move products from one location to another. In fact, storage, cataloguing, handling and packaging of goods are part of logistics too.
Examples of logistics
Let us take the natural gas industry as an example. The logistics for natural gas involves managing the pipelines, trucks, storage facilities and distribution centers that handle raw material and end product as it is transformed along the supply chain.
Here is another example based on the e-commerce industry using Amazon. It uses a global network of distribution, sortation and fulfillment centers. Through a complex logistics framework, it is able to fulfil same-day and next-day delivery orders.
Products are first sent to Amazon’s fulfillment centers before being moved to sortation centers. Once the products reach sortation centers, they are loaded onto a wide range of transportation modes; sometimes including the company’s own fleet of delivery trucks and airplanes.
What is logistics management?
Logistics management is the management of the complete flow of goods and their particular services. It involves identifying prospective distributors and suppliers, as well as determining their effectiveness and accessibility. It also tracks the movement, location and status of the inventory.
All of this work requires implementation, planning and strategizing. The goal of logistics management is to allocate the right amount of a resource at the right time, so that goods get to the target location in good condition and delivered to the right internal or external customer.
Some manufacturing companies outsource the management of their logistics to specialists while some manage logistics internally if it is cost-effective to do so.
What are the elements of logistics?
The five elements of logistics are:
- Storage, warehousing and material handling
- Packaging and unitisation
- Information and control
1. Storage, warehousing and material handling
A manufacturer produces goods in very large volumes to lower the cost of production. However, the volume requested by consumers or buyers may not be at the same rate as supplied by manufacturers.
Storage of surplus goods is needed until they are demanded by consumers. To achieve this, warehouse buildings are required. When a purchase request is made, the manufacturer engages logistics services – either from internal or external service providers – to collect the requested amount from these warehouses.
Different products will need different specialist storage equipment, such as shelving and cold rooms. Material handling equipment is also needed to move products around the warehouse, as well as to load/unload them safely into vehicles.
2. Packaging and unitisation
Packaging ensures products are correctly labelled and protected from the elements and potential damage caused by moving them.
Unitisation refers to packaging goods in a uniform shape, size and weight. This is important as it assists with optimal use of storage space and offers ease of transportation. The easiest form to move and store is a cube.
Inventory controls the flow of goods going in and out of a warehouse. It tracks the types of goods in stock, where the stock is located and how much stock to hold.
This encompasses all modes of transport for land, sea and air. Without this element, goods would be unable to move from one stage to another within a supply chain.
5. Information and control
This element is required by all the other four elements to act as prompts for various operational procedures.
For example, information on order levels is needed for inventory. This then helps to decide what orders need to be selected for packing; thereafter, the planning and organisation of transport for these orders.
Information and control also helps to design information systems that can control operational procedures. They are also key in the forecasting of demand.
What are the key logistics activities?
Knowing the elements helps to simplify the key logistics activities to:
- Order processing
- Materials handling
- Inventory control
- Transportation management – inbound and outbound
- Fleet management
- Network design
- Supply and demand planning
- Management of third-party logistics service providers
Types of logistics services
The most commonly used types of logistics services are warehousing services, freight shipping and courier services.
1. Warehousing services
Products are usually held at a warehouse or transported from various warehouses before they are shipped. Some companies have their own warehouses while some rely on external or third-party logistics service providers. The use of logistics service providers eliminates the cost of paying for the building or purchase or rental, and maintenance of a warehouse.
Storage needs will determine how much space is required for holding products, how long the space is needed, how easily accessible the products need to be, and more.
2. Freight shipping
Bulk orders and large items are mostly delivered via freight shipping. Freight shipping usually includes the use of a combination of vehicles such as ships, trains, cargo and trucks.
Part of freight services also include drayage services which enable orders to be moved from ports to particular warehouses for storage. Freight shipping can be a very complex matter as there are constant fluctuations in shipping timings, labour shortages and other factors.
3. Courier services
It is commonly used for smaller items, small order quantities, or for very fragile products that require extra care during delivery. Therefore, the pace and speed of delivery is faster. To facilitate this, a combination of air and land transportation modes are preferred.
Courier services are usually kept for the last step of delivery, i.e. to direct a product directly to an intended customer from a warehouse.
What is a logistics service provider?
It is a company which provides logistics services to other companies. Certain logistics providers (LPs) concentrate on specific types of goods or materials. This is because some products need specialised equipment for transportation, such as refrigerator trucks for moving frozen foods.
Some will specialise on specific types of freight such as general cargo, letters, pallets or containers. Some may focus on certain industries such as steel, automotive or chemical industry.
Tasks of logistics service providers
- Incoming goods logistics
- Order acceptance
- Payment and finance management
Types of logistics service providers
- First Party Logistics Service Provider (1PL)
- Second Party Logistics Service Provider (2PL)
- Third Party Logistics Service Provider (3PL)
- Fourth Party Logistics Service Provider (4PL) or Lead Logistics Provider (LLP)
How do I choose a logistics service provider?
Here are some tips to guide you in your selection of a good logistics company.
1. Be clear of the logistics needs for your business.
Define what your needs are first. What modes of transportation are required? What is the volume of your shipments? How far are you shipping your goods? This will determine the type of service provider – whether 1PL or 4PL.
2. Does the logistics company meet your requirements?
Find out whether the company is able to offer the full range of services for your shipping needs. Can it fulfill your expectations of quality?
3. Assess the LP’s experience and credentials
Here are a few questions you can ask:
- Has it worked with your type of cargo?
- Do you trust it with handling your goods and to avoid problems?
- Does it have expertise or the ability to handle customs?
4. Check if the LP is properly bonded
Aside from practical experience, it is important for the company to be financially stable, or bonded. LPs with bonds offer some guarantee for compensation in case the delivery or company runs into trouble.
Freight forwarders are required to obtain a freight broker bond to get their operating authority. This bond is issued only after a complete assessment of the company’s financial status.
It is wise to only engage a company that is properly bonded, as you would not want to encounter delayed delivery because of its financial issues.
5. Do research about its network
Not being well-connected with other forwarders and transportation companies might cause a delivery to be less seamless than expected. The more diverse and numerous its agents are, the safer will its operations be.
6. Test the quality of its customer service
Lastly, make sure the LP knows how to communicate well with its customers. The quality of customer service provided to you is critical, especially when there is a problem with your shipment.
It is the responsibility of the logistic service provider to ensure that all its services associated with logistics run smoothly. Poor logistics service can lead to untimely deliveries, failure to meet the needs of clientele, and ultimately cause a business to suffer. Therefore, it is best to choose a logistic service provider which is well-connected, responsible and experienced.