Cold chain logistics are inherently fragile operations and susceptible to risk. Mechanical failures, extended exposure to heat, and human error can significantly impact the integrity of temperature sensitive goods. Combined with the complexity and unpredictability of today’s supply chain and higher regulatory requirements of cold chain logistics, it quickly becomes evident that logistics leaders face a considerable challenge.
These dynamics have traditionally led logistics leaders to outsource much of their cold chain operations. However, today cold chain storage demand is outpacing new supply, which is challenging logistics leaders to contain costs and secure capacity for future inventory growth. As the food industry continues to grapple with inflationary impacts, strategic changes are needed to build greater resilience into cold chain operations. This is leading many leaders to weigh outsourcing vs. insourcing some operations.
Finding the right balance between outsourcing and in-house operations is key. Logistics leaders must consider what functions or capabilities should be considered for bringing in-house and which would be best managed through a third-party logistics (3PL) partner.
Insourcing cold chain operations
According to a Gartner survey, 3PLs face several challenges with managing logistics cold chain services. Their top concerns primarily involve capital investments, including infrastructure, technology and maintenance investments.
Given these insights, shippers must consider the possibility of bringing some capabilities in-house to offset the challenges cited by 3PLs. These include taking over responsibility for leasing contracts, identifying and investing in fit for purpose cold chain technology or automation, or evaluating tools for better regulatory compliance.
Organizations that use cold chain logistics as a key differentiator or have a high degree of service expectation will find that the flexibility, speed of innovation and heightened governance required will be much better with strong internal capabilities. Cold chain shippers often have very high service level requirements that are difficult to meet for 3PLs which in turn becomes the incentive for insourcing cold chain logistics.
The one aspect that shippers fail to understand is just because you outsource logistics, doesn’t mean it doesn’t need to be managed or governed. Cold chain logistics is inherently more complex and difficult to execute due to increased risks and higher compliance requirements.
In a hybrid logistics cold chain operating model, the shipper can alleviate some or most of the top challenges 3PLs face when engaging shippers with cold chain needs by retaining control of essential functions and pushing out non-value-add activities such as labor management. Engaging their 3PL with a hybrid model can bring a host of benefits to both parties, such as reducing long-term operating costs and increasing productivity.
Outsourcing requires a new partnership approach
Shippers largely feel confident in their cold chain abilities, with 89% indicating in a Gartner survey that they have a comprehensive cold chain strategy in place. However, they do raise concerns about managing cold chain logistics. Most notably, proper product handling, meeting regulatory compliance and recruiting skilled talent.
Partnering with at 3PL can help to alleviate these challenges. When it comes to identifying partners for cold chain logistics though, the general logistics evaluation process, which typically focuses on trade-offs between cost and service, is not adequate.
Cost should not be the only consideration when evaluating cold chain logistics, but it does have a significant influence on whether to insource or outsource. In a Gartner survey, 74% of respondents cite a 5% to 10% increase in logistics outsourcing expenditure over the next two years. As a result, finding cost-effective cold chain solutions has become increasingly difficult even as the need for greater performance and more specialized services continues to rise.
Beyond cost, capabilities for compliance, data monitoring, continuous improvement, scalability and value-added services such as quality control inspections, temperature device management and blast freezing should also factor in.
Consider for example the risk of noncompliance in the food and beverage industry, which can result in lost revenue and potential supply shortages. Nearly 38% of shippers have cited in a Gartner survey regulatory and/or quality compliance as a key concern for cold chain operations.
Without an understanding of the 3PL’s critical compliance components - such as temperature control standards and quality assurance protocols, asset redundancy plans and staff training requirements - shippers could find themselves at a disadvantage.
Another aspect that is often overlooked in the evaluation process is understanding the capabilities and robustness of the 3PL’s temperature data monitoring solutions. Today, not all outsourced cold chain operations deploy electronic or real-time data monitoring, which can result in detrimental outcomes — particularly for high-value products. It is critical to gain an understanding of the logistics partners’ available solutions such as real-time or passive temperature monitoring, active alarms and notifications, and cloud or on-premise solutions.
Preparing for future uncertainty
The dynamics that have created an uncertain environment for the food industry are unlikely to let up soon. To maximize their potential, logistics leaders need to prepare for uncertainty.
By rethinking their cold chain operating model with a hybrid approach that includes bringing some capabilities in-house and assessing outsourced options beyond typical cost and service trade-offs, leaders can build greater resilience to their cold chain.
