In this first part of , I will cover the difference between the two. I will briefly touch on some differences as far as advantages and disadvantages, but in part two tomorrow, I will cover more in depth specific advantages and disadvantages of both, offering tips on how to choose between the two types of logistics providers.
Introduction to Non-Asset Based Logistics vs. Asset Based Logistics
Like most industries supported by service providers, the logistics and supply chain fields are made up of a wide range of providers who execute logistics functions and services in a variety of ways. Most logistics service provider generally can be divided into two broad categories: asset and non-asset based logistics providers. In general, both providers work to manage their clients’ supply chains and logistics departments in a manner that will:
- Increase overall efficiency
- Cut costs both hard costs (freight rates, claims, accounting) and soft costs (time, resources, smarter business decisions through visibility)
- Decrease errors and mitigate risk
- And accomplish these on time
The differences between asset and non-asset based logistics firms become apparent when analyzing their methods of achieving these goals. The following will provide a definition of each 3PL classification and how they utilize different methods to develop supply chain solutions.
What is an Asset Based Logistics Service Provider
An asset-based logistics provider owns many or all of the assets necessary to run a client’s supply chain. These assets include trucks, warehouses and distribution centers, among others. When considering an asset-based logistics provider, look for evidence that they have demonstrated the effective use of their assets to cut cost in previous client’s logistics operations. A well-established asset based 3PL should be able to provide documentation that knowledge of their assets’ strengths and vulnerabilities has allowed them to lower the expense of moving and storing goods for their clients.
Asset based logistics providers, however, can sometimes realize a conflict of interest when developing supply chain and logistics solutions. Since this type of 3PL has made significant investments in their physical assets, they are tethered to those assets when devising ways to manage your logistics. Consequently, asset based providers may route your supply chain through their own network in order to realize continued value from their assets, even if this may not be the most cost-effective or efficient way to manage your supply chain. Furthermore, when it comes time for a freight claim, there arises further conflict of interest (but more on that tomorrow).
What is a Non-Asset Based Logistics Service Provider
A non-asset based logistics service provider does not own the assets necessary to manage and implement a supply chain. Instead, a non-asset based provider offers its expertise in negotiating contracts with carriers, maintaining carrier relationship management programs, warehouses, and distribution centers in order to manage your supply chain at the lowest possible cost to your business. A non-asset based logistics provider realizes that every client has different priorities for their logistics operations, and since they do not need to utilize an inventory of assets to remain profitable, non-asset based third party logistics companies exhibit a flexibility in supply chain solutions that asset based logistics providers do not.
When considering a non-asset based logistics company, remember that you will be working closely with the 3PL to create a custom logistics plan that will work best for your companies needs, but the execution will be up to the provider. Therefore, you will have time to focus on your core goals and the values that your business was built on, while they focus on running your supply chain. A transparent and efficient logistics system will relieve you of burdensome supply chain obligations, allowing you to do what you do best — focus on your core competencies.
Furthermore, some non-asset based logistics provider will also provide a soft asset, such as a transportation management system software to aid you in your ability to procure transportation, which is agnostic to carriers or the mode of transportation you choose.
Choosing the Right Type of Logistics Service Provider
It is important to remember that when considering a logistics service provider, you are ultimately evaluating the quality of the relationship that you will be acquiring with a true business partner. The efficiency of your supply chain has a direct effect on the reputation and dependability of your business, and it should not be entrusted to just any provider with a low-ball price.
Tomorrow, follow and read along as I explore the advantages and disadvantages a little more specifically of non-asset based logistics vs asset based logistics.