Which Logistics Model Best Fits Your Needs?
Diagnostic Laboratories and Hospitals are under immense pressure to reduce costs and improve efficiencies. A line item on every budget that should be considered is transportation, logistics, and supply chain management.
There have been major improvements and diversification in the past five years within the logistics community. The old standard of one size fits all, with no room for innovation or customization, is dead. Companies should now expect custom solutions using many different platforms and techniques. The basis for the choosing the right vendor comes down to what kind of logistics model best fits the needs of the company.
Below the 4 most common logistics models in employ. Each is described by three main values of cost, direct control, and risk on a scale of 1 to 5, where 5 is the highest.
“First Party Logistics” is primarily defined by the direct ownership of the means of transportation. The fleet is owned by the facility that needs it, and employees are hired by the company to staff the fleet. This requires a robust internal logistics department as well as a fleet of vehicles and requisite drivers. Of all the different models, this is the most expensive but allows the greatest control of the end result. Typically, only large entities truly benefit from a 1PL solution due to the fact that they can justify the cost over a large network of clients. Often a 1PL is augmented by a 3PL to provide overflow coverage and risk reduction.
“Second Party Logistics” is the use of an intermediary that owns and operates all its transportation solutions. This is commonly found when ordering from suppliers that fulfill their own orders. For example, a hospital will find that most of its vendors for supplies also perform their own shipping. A 2PL model does not scale up easily to accommodate fluctuations in need and typically is not used for anything beyond recurring shipments from supply vendors.
“Third party logistics” is the bread and butter of most outsourced needs. While there can be variations within this model, the basic tenants are similar to a 3PL but with better flexibility and scalability. A 2PL typically has a difficult time scaling up for peak seasons where as a 3PL using a contractor model (instead of employees) can ramp up coverage during predicted high-volume times.
Another advantage of a 3PL is the ability to take a successful model and implement it in a different geographic area. A 1PL requires significant investment to expand along with the increased risk of having more driver son the road, vehicles owned, etc. A 2PL is heavily reliant on geographic based facilities, which have a difficult time of rapidly moving into new areas.
“Fourth party logistics” is a relatively new structure. In essence, a company hires a 4PL to manage a group of 3PLs servicing a variety of areas. The 4PL itself does not directly provide logistics services, but rather acts as an agent for the client.
This is advantages for very large vendor networks and allows the company to offset employee costs of managing so many outside elements. A 4PL also is able to use collective bargaining to negotiate the lowest price possible from multiple unrelated entities.