Outsourcing remains all the rage in logistics. Every day, it seems, we hear about another company that's furloughed its distribution department and hired a third-party logistics company (3PL) instead. Under pressure to cut costs, companies increasingly are hiring 3PLs on the grounds that an outsider can do the job more cheaply and efficiently than its own staff can.

But before you rush to pink-slip your transportation, distribution, or logistics departments in the name of cost cutting, consider this: What if you invested in the staff and gave them the resources they need to do their jobs more effectively? You might find that "insourcing" can do as good a job as outsourcing.

Over the more than 20 years that I've been writing about logistics, I've learned that there's a "secret" about contract or third-party logistics that's largely been hushed up in the industry. Here it is: 3PLs are successful at what they do, not because they're smarter than their shipper clients, but because they have better tools.

When a third-party logistics provider takes over a shipper's distribution function and achieves cost reductions for its client, it does so by using sophisticated software that optimizes warehousing and transportation activities. The 3PL has bought supply chain applications and trained its staff to work with tools that allow them to identify big savings. No wonder 3PLs have been some of the biggest buyers of supply chain execution and planning packages.

Facility with software applications gives 3PLs the wherewithal to solve complex logistics problems. It's the software that allows 3PLs to analyze freight spending data and find ways to save money on transportation. It's the software—not the 3PL's staff—that optimizes the distribution network and finds inventory efficiencies.

Although shippers hire 3PLs to save money, they should keep in mind that the contract services provider also has to turn a profit. If the 3PL is a publicly held company that's subject to Wall Street's performance expectations, it's probably under pressure to achieve double-digit earnings. To earn that kind of profit, it has to recover its expenses—and then some. Thus, while the 3PL is cutting transportation costs for your benefit, it's also adding costs for its own benefit.

In some cases, acquiring and taking full advantage of a software tool such as a transportation management system could give your staff the ability to achieve the same kind of savings that a 3PL could. Of course, that would require a capital investment in both technology and training, but it would be well worth the cost.

Would an in-house staff work as hard as a 3PL? Although one might argue that the profit motive encourages 3PLs to work harder, companies can offer their employees incentives to seek out cost-saving opportunities. Bear in mind, too, that an in-house staff, properly motivated and rewarded, will align its objectives with the corporation's profit goals rather than with those of an outside provider's shareholders.

Most important of all, perhaps, is the issue of loyalty. Despite all the hype about partnerships, any contract distribution firm is a hired hand. The 3PL employees' loyalties belong to the 3PL. Your in-house staff, on the other hand, are corporate soldiers whose pledge of allegiance belongs first and foremost to you.