Contract logistics

From CEOpedia | Management online

Contract logistics is a service provided by outsourcing company that includes all or chosen logistics functions. Companies outsource their logistics management departments in order to lower costs of operating. The main logistics functions that can be outsourced are:

  • design of supply chains,
  • warehousing,
  • transport and distribution,
  • managing inventory,
  • processing orders,
  • collecting payments.

Design of supply chains

Supply chain - covers all activities related to transport and processing of goods, mentioning also the initial stage, that is, obtaining all kinds of raw materials and the final stage, ie delivering the product to consumers. The term also includes the flow of information that is relevant throughout the entire process.

Basic principles of supply chain management:

  1. Getting the right product, at the right price, at the right time
  2. Quality
  3. Cost
  4. Lead Time
  5. Service Level [1]


Storage is activities related to the temporary accumulation of stocks of tangible goods, their storage in appropriate conditions and the transmission to recipients. The necessity of storage results from the fact that the production time of individual goods does not coincide with the time of their consumption. These differences are mitigated by the appropriate storage of stocks in appropriate warehouses where, in addition to the collection of goods, other tasks are also performed, such: as picking, checking, packing, order picking, packing, or portioning., Warehousing is an emerging technique for retrieval and integration of data from distributed, autonomous, possibly heterogeneous, information sources.[2].

Transport and distribution

Transport is based on paid services. Basic transport split: - passenger transport - moving people, - transport traffic - shipment of loads.

The distribution logistics covers the flow of goods from the finished product warehouse of the producer directly or through intermediaries to end consumers.Distribution is one of the most important elements of the company's logistics system, because the efficiency of the distribution processes allows reducing the total logistic costs, while increasing the level of customer service[3].

Managing inventory

Inventory management is the quantity or value of raw materials, services, component goods, semi-finished products and finished products, which are stored for use in the event of such a need. It focuses on 4 issues: how many units should be ordered, when to place an order, which inventory components need special attention and whether you can protect against the increase in inventory costs[4].

Logistics management becomes more and more important function in the company. It is difficult to make it efficient if the company operates at low scale. Therefore, many medium and even large companies decide to outsource their logistics department. External company that provides services to multiple companies is able to make the processes much more efficient.

Examples of Contract logistics

  • Warehousing: Warehousing is a process of storing goods in a secure and efficient manner. Companies can outsource their warehousing services to third-party logistics companies to improve efficiency and reduce costs. These companies provide the latest in warehouse management systems and the latest technology to manage the entire supply chain.
  • Transportation: Companies can outsource their transportation needs to third-party logistics companies that specialize in transportation. This includes arranging for pickup, delivery, and transport of goods from one location to another. They can also manage the entire supply chain from start to finish, ensuring that goods are delivered safely and on time.
  • Inventory Management: Companies can outsource their inventory management to third-party logistics companies. These companies provide the latest technology to manage inventory and ensure that goods are in stock at all times. They can also monitor trends and forecast future inventory needs.
  • Fulfillment Services: Companies can outsource their fulfillment services to third-party logistics companies. These companies provide end-to-end fulfillment services, including order processing, pick and pack, and shipping services. They can also provide customer service and returns management, ensuring that customers are happy with their purchase.

Advantages of Contract logistics

Contract logistics is a service provided by outsourcing companies that includes all or selected logistics functions. It has several advantages, such as:

  • Cost Savings - Outsourcing to a logistics provider can reduce overhead costs, labor costs, and other expenses related to logistics management. This allows companies to focus on their core competencies and save on overall costs.
  • Access to Expertise - Contract logistics providers are experts in their field and have the knowledge and experience to make sure that the supply chain runs smoothly. They are also able to provide advice on how to optimize operations and processes.
  • Flexibility - Contract logistics providers are able to adjust their services to meet changing customer needs and demands. This allows companies to be more agile and respond quickly to changes in the market.
  • Risk Mitigation - Contract logistics providers are able to manage risks associated with supply chain disruptions, such as delays or quality problems. They are also able to provide contingency plans to minimize the impact of any disruptions.
  • Scalability - Contract logistics providers are able to scale up or down their services to meet the changing needs of their customers. This allows companies to increase or decrease their logistics operations to meet changing demands.

Limitations of Contract logistics

Contract logistics has several limitations that need to be taken into consideration when deciding on outsourcing. These limitations include:

  • Limited visibility and control: When outsourcing logistics functions, companies may have limited visibility and control over their supply chain operations. This can lead to delays in deliveries and other operational issues.
  • Lack of flexibility: Contract logistics providers may not be able to quickly adjust to sudden changes in the market or supply chain, resulting in disruptions to the flow of goods.
  • Cost fluctuations: Outsourced logistics operations can be subject to cost fluctuations, making it difficult to accurately predict budget and manage costs.
  • Risk of data breaches: Outsourcing logistics functions can create potential security risks due to data being shared with third-party providers.
  • Lack of integration: Contract logistics providers may not be able to fully integrate with existing systems and processes, resulting in a lack of efficiency.

Other approaches related to Contract logistics

One of the approaches related to Contract logistics is to outsource all or some of the logistics functions. This includes:

  • Shipping and transport management - includes the planning, scheduling, and coordination of shipments, including tracking and tracing of goods throughout the supply chain.
  • Inventory control and warehousing - includes the management of inventory and storage of goods, as well as the inspection and labeling of goods.
  • Distribution and delivery - includes the delivery of goods to customers and other end users, as well as the distribution of goods within the supply chain.
  • Reverse logistics - includes the management of returns and other processes related to the return of goods.
  • Customs and trade compliance - includes the management of customs and other regulatory requirements, such as export and import laws and regulations.

In summary, contract logistics is a service that can be outsourced to an external provider, whereby the provider takes over all or some of the logistics functions, such as shipping and transport management, inventory control and warehousing, distribution and delivery, reverse logistics, and customs and trade compliance.

Contract logisticsrecommended articles
Supply logistics subsystemAdded value (logistics)Production logistics subsystemDistribution logistics subsystemInventory in transitProcurement logisticsLogisticsTypes of supplyInventory system



  1. International Journal of Physical Distribution and Logistics Management,2001 pp235-246
  2. Yue Zhuge, Hector Garcia-Molina, Joachim Hammer, Jennifer Widom page:1
  3. The Role of Transportation in Logistic Chain pp. 1657-1672
  4. Mananging Inventory with the prospect of absolescence, pp 215-222

Author: Magdalena Pawłowska