Do Logistics Aggregator Reduce Cost of Logistics?

A number of Logistics Aggregator now offer services to act as Single Point of Contact for all your parcel distribution needs. Why negotiate with multiple logistics companies (LSPs) in different regions when you can simply have one person handle all the hassle. Sounds like a great idea- but does it really work on ground?

The answer is- well, it depends!! Let us look at some of the factors:

Distribution Variability

If you get orders for different pin codes every day, and there is no pattern- it is tough to find LSPs for every delivery. This is typical of e-commerce sellers. Here a tie up with aggregator makes immense sense.

But if your load is well known and distribution points are certain, it may be a good idea to align 3-4 partners assigning relevant "lane" to each partner or two.

Cost Vs SLA

If your only criteria are cheapest cost- aggregators do a good job of offering lowest price- as they will back-to-back contract lower cost LSP to execute the job.

But if your key concern is "SLA" that is Service Level at right costs, you may want to look at other factors. Suppose you ship 1000 shipments a month and SLA is 95% with say cost of Rs. 300 per shipment, against cost of Rs. 375 with SLA of 99%- what will you select? In first case- almost 50 shipments can be delivered late, against just 1 shipment for better SLA partner.

As any logistics person is aware- the 95% in reality looks more like 85%, and then life is really tough.

Ground Coordination

Many aggregators assign load to selected LSP and then their job ends. The coordination to get LSP to your door, ensure documentation, follow up for any delay is usually left to customer.

While aggregators offer track and trace- many a times data is not accurate as they too depend on underlying information from partner.

This may mean that overall workload of your team has not reduced at all, and in fact may require more manpower.

As coordination pain is at transaction level, at a warehouse- the central procurement team is many a times not even aware of the same.

Then, what is the solution? Get Best of both worlds !!

Many mature organizations have gone for a hybrid approach. They have used tools such as WebXpress AI to Digitize entire process. They have onboarded Aggregators as one more partner, and also continued their relationship with key logistics partners.

The tool helps them to pre-define logistics partner for a given lane, priority of product, type of customer etc. They can also use recent performance as criteria to rank Logistics Partners.

More importantly- they are able to streamline and digitize every process.  From Order to Warehouse Pick to Invoice to LSP Assignment to E-way bill to Shipment label - all steps are digitized reducing human intervention.         

Shipment labels already have LSP Airwaybill bar code. Thus, LSPs can simply visit warehouse, go to their designated bay and pick-up relevant shipment by scanning them. No misroute, no commotion.

Logistics Aggregator only solve part of the problem- getting a cheaper logistics partner. But rest of the process optimization requires investment in digital tools along with operational transformation.