Third-Party Logistics (3PL) Outsourcing Evaluation: A Case Study of Rubbermaid Corporation

Introduction:

This report analyses the case of Rubbermaid Corporation (RBC), which is a clothing retail company situated in Melbourne, Australia. This company deals with B2B and B2C clients all over Australia. The company used to deliver the orders of the customers through its own extended logistics fleet, which was a potential reason for the company to gain competitiveness in the market. However, managing the fleet became challenging later for the company due to cost, vehicle unavailability and other issues. As a result, the company made a decision to outsource 3PL services from Kaiger.

This report analyses the decision of the company for outsourcing 3PL services by weighing the positive and negative outcomes of the decision against each other, This report also analyses the critical components for transportation cost for RBC, and also provides a few recommendations for the company to overcome the present logistics crisis.

Critical Components of RBC’s transportation cost

Fleet management refers to the use of vehicles to deliver service or products for an organisation in a cost effective way (Sayed & Sayed, 2020). At RBC, its internal fleet management system was primarily the method of delivering orders to the customers. According to the case, there are multiple critical components that are associated with transportation cost of RBC.

Cost of managing fleet operations:

Running in-house fleet management system requires fuel costs periodically, which is why fuel is considered as important factor in making up the transportation cost of internal fleet (Rudyk et al., 2019). Moreover, the price of fuel is volatile (Gu et al., 2019), managing fuel in internal fleet is a critical component of transportation cost. As RBC used to deliver orders from six of its big stores through its internal fleet, fuel is a critical component which contributes to transportation cost.

Outsourcing services due to uncertainty:

It has been mentioned in the case that RBC had to hire an external service provider as a replacement of its own vehicle, which was not maintained and delivered on time by a vehicle maintenance company. This led to delay in delivering the orders on time, and also costed extra money to arrange alternate vehicle. It has also been mentioned by Adekitan et al. (2018), that repetitive vehicle breakdowns lead to increased maintenance cost and also impact service delivery. Therefore, emergency outsourcing of services due to uncertain situations is a critical component of transportation cost as noted from the case study.

Labour management:

According to the case, frequent absenteeism of drivers was another critical component of transportation cost at RBC. Labour shortage also required the company to hire replacement drivers, who demand higher payment specially over weekends. Labour absenteeism leads to operational delays and poor working conditions (Baccichetto et al., 2024), which indirectly impacts transportation cost. Therefore, the unavailability of labour led to increased transportation cost for RBC, which is why it is a critical component.

The analysis of RBC’s 3PL outsourcing decision:

The decision of RBC to outsource third-party logistics service from Kaiger resulted in positive as well as negative impacts. To analyse the decision, the positive and negative impacts of 3PL outsourcing decision are discussed below:

Positive impacts:

Operational reliability and elimination of labour absenteeism:

One of the positive experience of outsourcing 3PL service from Kaiger was that the need to replace labour due to labour absenteeism was eliminated. This is because Kaiger’s logistics service had their own labour which made the operation smoother. As a result, the company did not have to find other driver alternatives which saved the time and cost. This has also been reported by Jean (2024) that 3PL logistics services are also used by organisations to cut down labor costs. Therefore, this can be considered as a positive impact of RBC’s decision of 3PL outsourcing.

Termination of vehicle maintenance contract:

The decision of the company to outsource logistics service from a 3PL service provider also benefitted the company by eliminating the need to hire a vehicle maintenance contractor separately to repair the company’s internal fleet vehicle. This assists the company in enhancing the overall logistics functions, and allows the company to concentrate on other functions of the business (Gonzalez, 2022). Therefore, taking the fact into consideration, that RBC did not require to hire an external vehicle maintenance contractor, this fact can be considered as a positive aspect of RBC’s decision to outsource 3PL services from
Kaiger.

Reduction in logistics cost:

According to the case study, a substantial amount of reduction in travel cost was noted after contracting with Kaiger for 3PL services. It has been noted from the case study that the company found per kilometer cost reduction which was required to travel in the South and North clusters. This has also been evident in the literature, as Abbasi et al. (2024) has reported that outsourcing 3PL services assists companies in minimising cost expenditures and improves the overall revenue. Therefore, cost reduction due to 3PL outsourcing can also be considered as a significant positive impact of RBC’s decision.

Negative impacts:

Financial investments for technological upgradation:

According to the case study, RBC was required to financially invest certain amount to acquire the tracking system offered by Kaiger for improved and efficient logistics management for the company. This aspect further adds complexity to the cost-benefit analysis. Having a tracking system was important for RBC, so that fragile, or high value items can be delivered safely to the customers, but due to its high cost the implementation was unsuccessful. This can be considered as a negative impact of RBC’s decision to outsource 3PL service, as it required extra investment for tracking services.

Reduced customer responsiveness:

Another lacking of Kaiger as mentioned in the case study was low responsiveness to customers which negatively impacted customer expectations. This was due to the internal policies of Kaiger, that the delivery will only be started if the vehicle is fully loaded with the orders. This resulted in increased delivery times and longer waiting time for customers. However, in the light of Asamoah et al. (2021) maintaining customer responsiveness in logistics functions impacts the ability of organisations to stay competitive in the market, and to retain, attract and satisfy customers. The inability of Kaiger services to adhere to customer responsiveness measures reflects the negative impact of RBC’s logistics outsourcing decision.

Loss of RBC’s high value customers:

The decision of RBC to outsource logistics services from Kaiger also resulted in a major loss for the company, as it led to the loss of 135 customers, among which a few of them were high-value customers of RBC. This was due to delayed logistics services, and increased waiting times for the customers as a result of which, the customers got dissatisfied. This impact served as a major downturn for the company, as it not only lost high value customers, but also impacted the overall long-term profitability, market value, and customer perception of the company.

Considering the positive and negative aspects of RBC’s outsourcing decision, it could be analysed that although Kaiger’s 3PL services resulted in cost reduction and efficient management of logistics, it also resulted in the loss of potential and old customers of the company which challenged the long term profitability of the company. The loss of potential customers was a major drawback, and weighs more than the positive impacts. Therefore, it could be assessed, that the decision of RBC to outsource 3PL logistics resulted in major negative consequences, and can be considered as a wrong decision made by the company.

Recommendations for RBC to overcome current crisis:

Combining logistics operation with 3PL service:

RBC is recommended to opt for a hybrid service delivery model where a company’s internal logistics fleet works along with the 3PL service providers, so that the operational efficiency can be achieved and diverse requirements of the customers can be fulfilled (Tovstolis, 2024). In this way, high value customers who require urgent delivery can be looked after by RBC’s own logistics fleet, while customers who do not demand for immediate delivery or non-urgent orders can be catered by third-party logistics service providers. In this way, the company can target the low customer responsiveness issue, and might gain back its potential customers, or refrain itself from further loss of customers.

Revision of contract with 3PL service providers:

Another recommendation for RBC is to set clear terms and conditions with Kaiger by revising the contract. RBC should create an optimal contract with Kaiger, as an optimal contract with 3PL providers allows for improvement, and efficient outcomes. Open book contract can be formed which will require RBC to pay for actual logistics costs, in return, this would increase accountability and flexibility for customised services. This type of contract also allows companies to monitor on-time shipping performance measurement (Kook & Oleksyn, 2022), which might result in timely delivery of orders to the customers.

Conclusion:

RBC’s decision to outsource 3PL services brought some positive changes such as cost reduction and elimination of external contracts for vehicle maintenance or labor supply. However, this decision also led to a loss of potential customers, and also challenged the long term profitability of the company. But with right strategic actions, this impact of customer loss on the company, and current logistics issues can be tackled with the help of recommendations mentioned in the report, including revision of contract and practising hybrid model of service delivery along with 3PL services.

References:

Abbasi, S., Sıcakyüz, Ç., Gonzalez, E. D. S., & Ghasemi, P. (2024). A systematic literature review of logistics services outsourcing. Heliyon, 10(13). https://doi.org/10.1016/j.heliyon.2024.e33374

Adekitan, A. I., Bukola, A., & Kennedy, O. (2018, September). A data-based investigation of vehicle maintenance cost components using ANN. In IOP conference series: materials science and engineering (Vol. 413, No. 1, p. 012009). IOP Publishing. DOI:10.1088/1757-899X/413/1/012009

Asamoah, D., Nuertey, D., Agyei-Owusu, B., & Akyeh, J. (2021). The effect of supply chain responsiveness on customer development. The International Journal of Logistics Management, 32(4), 1190-1213. DOI 10.1108/IJLM-03-2020-0133

Baccichetto, T., Drulea, A. M., & Nae, A. (2024). Balancing act: Fostering employee well-being during labour shortages in e-commerce logistics. In E3S Web of Conferences (Vol. 585, p. 06008). EDP Sciences. https://doi.org/10.1051/e3sconf/202458506008

Gonzalez, A. H. (2022). Logistics Outsourcing and its Impact on Businesses: a Study into the Changing Trends in the 3PL Market. Business ETD Collections, 24, 1-22. https://doi.org/10.63227/755.789.87

Gu, Y., Wallace, S. W., & Wang, X. (2019). Integrated maritime fuel management with stochastic fuel prices and new emission regulations. Journal of the Operational Research Society, 70(5), 707-725. https://www.tandfonline.com/doi/abs/10.1080/01605682.2017.1415649

Jean, G. (2024, September). Third-Party Logistics (3PL) and Supply Chain Efficiency. Research Gate. https://www.researchgate.net/publication/384334813_Third-Party_Logistics_3PL_and_Supply_Chain_Efficiency

Kook, T. S., & Oleksyn, M. (2022). Better Contract–Better 3PL Performance [Doctoral dissertation, Massachusetts Institute of Technology]. Google Scholar. https://dspace.mit.edu/handle/1721.1/142920

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Sayed, C. M. A. A., & Sayed, A (2020). Challenges of Contemporary Fleet Management and Optimisation. International Journal on Recent Technologies in Mechanical and Electrical Engineering, 7(7), 40-47. https://www.researchgate.net/publication/361909888_6_UGC-_Care-Challenges_of_Contemporary_Fleet_Management_and_Optimisation

Tovstolis, I. (2024). Approaches to developing hybrid fulfillment models for e-commerce: The synergy of delivery and storage. Journal of Sustainable Development of Transport and Logistics, 9(2), 21-31. https://doi.org/10.14254/jsdtl.2024.9-2.2