3PL or Third-party Logistics services are no longer unfamiliar to businesses in the Vietnamese market. Outsourcing part or all of the logistics and supply chain operations has become an essential trend for various types of businesses, including manufacturing, services, and retail companies. This allows them to focus on their core activities, such as production, marketing/sales, procurement/financing.
 
The concept of Contract Logistics is inseparable when discussing 3PL. To effectively utilize the services of Third-party Logistics, supply chain managers need to have a clear and comprehensive understanding of this concept. So, what is Contract Logistics? How is it broken down into different types? Why has the market talked more about In-house Logistics in the last 10 years? How do In-house Logistics and Contract Logistics differ, and how can they be distinguished? Let's explore these questions in this article.
 


What is Contract Logistics?
 
Contract logistics is a logistics service in which companies or organizations hire a professional logistics service provider (often referred to as a logistics service provider or 3PL - Third-Party Logistics) to manage a portion or the entire supply chain. Contract logistics services include warehouse management, transportation, order management, packaging, returns handling, and various other activities related to logistics and the supply chain.
 
Typical Contract Logistics services include:

- Warehouse and distribution center rental services: 3PL companies act on behalf of the client to perform all activities, including receiving goods, packaging, labeling, storage, order picking, and shipping, ensuring that the goods are managed correctly, both in terms of quantity and quality. This type of service is commonly seen at large warehouses and distribution centers in industrial zones near Hanoi and Ho Chi Minh City, such as those in Binh Duong, Bien Hoa, Long An (southern region), and Bac Ninh, Hung Yen, Hai Phong (northern region). An important point to note in this type of service is that 3PL providers do not necessarily need to own their warehouses or distribution centers. They can entirely lease facilities (warehouses) from third parties and combine them with their operational experience, IT platforms, and networks to provide comprehensive services to customers. In today's market, we can also see many warehouse landlords, such as Mapletree, BWI, Cainiao, offering ready-built warehouses with high standards. However, they are not 3PL providers, and if clients rent storage directly from these landlords, it is not considered Contract Logistics services. In essence, at this point, the client companies only use the storage service provided by the warehouse lessors, and the services that make up Contract Logistics, such as import/export management and value-added activities, are not provided and require the client companies to handle them themselves.

- Freight transportation services: 3PL providers handle the transportation of goods to customers, ensuring that the goods are delivered in the right quantity and on time. Customers in this context are distributors, retail store chains, convenience stores, or end-users (End-Customer), and they are considered the customers of the client company (or the company hiring Contract Logistics services). Transportation services can be further divided into various types, such as road transport, sea transport, rail transport, air transport, or a combination of multiple modes. After delivering the goods, fees can be calculated in various flexible ways, such as per trip, per cubic meter, per ton, or per pallet. These flexible fee calculation methods allow client companies to actively manage and budget their logistics operations.

- Other services: consulting services, supply chain redesign, customs clearance, freight forwarding, and more.


Picture: Some customers Cj Gemadept Logistics is providing Usual Contract Logistics Services

What is In-house Logistics?
 
In essence, In-house Logistics is a form of Contract Logistics. The most significant difference is that In-house Logistics is carried out within the client's manufacturing facilities. Instead of sending goods to be stored in the warehouses and distribution centers of 3PL providers, In-house Logistics requires 3PL service providers to deploy personnel, equipment, systems, and operational processes to handle orders directly at warehouses within the client's factory premises. These warehouses typically store raw materials, packaging materials, components, and finished products. The combination of existing facilities and the operational experience of 3PL providers helps optimize the operating costs for businesses. In addition, new products can be quickly brought to the market as needed (instead of transferring through the external warehouses of 3PL providers). In-house Logistics services are suitable for most types of businesses, especially manufacturing companies.
 
Key points to note in In-house Logistics:

- Raw material inventory management: This is a common task for 3PL providers when offering In-house Logistics services. Goods in the raw material warehouse usually have a large number of different SKUs (stock keeping units) and belong to various categories, such as cartons, bottles, caps, cords, bags, nylon, flavorings, and ingredients, among others. Most products are not fully barcoded, leading to pressure on accurate inventory control. In addition, 3PL providers need to ensure the efficiency of goods in and out of the warehouse to provide the right amount of goods to the production line. Incorrect or inadequate supply of goods to the production line can lead to production stoppages and product quality issues.

- Receiving finished products from the production process: Bringing goods from the production line to the finished product storage warehouse requires careful organization and management. With continuous production and a fast pace, the amount of goods to be received from production is often substantial and cannot be interrupted. This requires 3PL providers to plan and allocate resources properly to ensure that the goods receiving process runs smoothly, minimizing incidents and ensuring continuity. The issue of goods delivery and handover between production and the main product warehouse is also a task that needs to be optimized. The arrangement of checks and counts at the "buffer" area between production and the warehouse often leads to congestion and waiting. Pallet coding is considered an effective solution to address this issue. Each pallet produced is identified and labeled with a unique ID. At this point, the goods delivery process only involves barcode scanning, reducing errors, saving labor costs, and increasing productivity.

- Changing warehouse layout and operational processes: Changing warehouse layout may involve moving storage positions, creating separate storage areas for different product types, or optimizing space to facilitate goods in and out. This can help reduce the time spent searching for products and improve the efficiency of the storage warehouse. At the same time, process improvement is one of the essential tasks of 3PL providers, aiming to eliminate unnecessary steps and change execution methods to increase operational efficiency. However, in reality, changing the layout of goods or operational processes in In-house Logistics is not as easy as it is in external warehouses or distribution centers. While these activities in external warehouses usually do not cause difficulties in "cutting off" the operation time, facilitating the transition of layouts or processes, in In-house Logistics, they require careful consideration and implementation, especially to avoid disruptions to the production process. Changing layouts or processes in In-house Logistics typically involves significant challenges and requires 3PL providers to find suitable solutions. This demands close cooperation between different departments within the factory to ensure that all changes are systematic and synchronized.

- Challenges in optimizing resources: In-house Logistics is a 3PL model where resources are deployed within the client's existing warehouses. This means that the entire area used in the warehouse and the resources allocated are dedicated to a single client. However, the production plans and actual sales volumes of businesses, especially FMCG companies, are often uneven and unstable. The difference between peak and off-peak periods is significant. This creates pressure on balancing staff and equipment for 3PL providers. Low-production days result in inefficiencies, while high-production days can be challenging to meet. In the case of external warehouses and distribution centers, 3PL providers can find optimal solutions and share resources among multiple clients, adjusting flexibly to different times. However, in In-house Logistics, this is often not allowed or difficult to implement. 3PL providers need to research and find alternative solutions to cope with these challenges effectively.

Picture: Inhouse Logistics is carried out within client's manufacturing facilities.

Over its 15 years of establishment and development, CJ Gemadept is honored to be chosen as a strategic partner providing In-house Logistics services to many prominent clients such as Suntory Pepsico Vietnam (SPVB), Diana Unicharm, GroupSep, Mercedes-Benz Vietnam, P&G, Mondelez Kinh Do.
 
With a professional operations team, advanced IT systems, and a broad logistics network and partnerships, CJ Gemadept Logistics is committed to providing optimal solutions based on the specific needs of each client (on demand). Contact us today to experience a completely different In-house Logistics service in Vietnam!