What is Contract Logistics? – Definition & basics
Contract logistics deals with the cooperation between a freight forwarder and its logistics service providers, which is mainly characterized by long-term contracts. (BWL-Lexikon, n.d.)
A freight forwarder does not always have the know-how and resources to handle all the necessary tasks along the supply chain itself, which is why outsourcing certain tasks, such as the development of a track & trace software (e.g., EIKONA Track and Trace), is often sensible. (BWL-Lexikon, n.d.) Now that we have looked at what the term contract logistics means, we will now look at an example of how a company can design its contract logistics.
Contract Logistics – An example
To show how a company can specifically design its contract logistics, we will take a look at the contract logistics of Mustermann Spedition GmbH, which achieved an order growth of 20% last year – So far, so good. However, due to the increased transport volume, the dispatchers and customer service can no longer manage to notify all shipments on time because the phone calls and emails became too time-consuming for the forwarding staff to handle. It quickly became clear that software for automatic notifications was needed. For this reason, the company’s management decided to cooperate long-term with an IT company in this area. Next, the company must consider which service providers might be suitable. Criteria must be established that the contract logistics service provider must meet, which usually include the company’s experience, capacities, and project implementation costs.
After selecting a service provider, the exact requirements for the software are formulated, after which the provider gives an estimate of how much the project is expected to cost. When designing the contract, the services to be provided by the IT company are precisely documented, licensing issues are clarified, and the contract duration is determined. Depending on whether the software needs to be maintained regularly or not, the contract also specifies when and by whom maintenance work will be carried out. Additionally, a schedule is set, detailing the various steps until the software is implemented. It would exceed the scope of this example to go through all the individual factors relevant to a contract conclusion in contract logistics, so we have only looked at the most important ones.
Once both parties have signed the contract, the project implementation begins. Subsequently, the project progress is monitored, and target values are compared with actual values. After the software has been implemented at Mustermann Spedition GmbH, the contract logistics then transitions to the ongoing monitoring and optimization of the software. As you could see in this example, contract logistics is similar to contractual cooperation between companies in other industries, except that here, logistics services along the supply chain are the focus, and the contracts are usually even more long-term. (BWL-Lexikon, n.d.)
Summary
In short, contract logistics deals with the conclusion of long-term contracts negotiated by freight forwarders and their service providers. Contract logistics not only involves analog tasks in logistics, such as picking, but also digital tasks, such as automatic notifications, if the in-house capacities are insufficient. (BWL-Lexikon, n.d.)
Sources:
Kontraktlogistik. (n.d.). BWL-Lexikon. https://www.bwl-lexikon.de/wiki/kontraktlogistik/