Chapter 11 Logistics Relationships and ThirdParty Logistics Logistics

Chapter 11: Logistics Relationships and Third-Party Logistics

Logistics Relationships and Third. Party Logistics: Introduction n With more firms interested in working more closely with their supply chain partners, high priorities are: n Developing and implementing successful supply chain relationships; n The need for collaboration to achieve supply chain objectives; and, n Value created by third-party logistics. Chapter 11 Management of Business Logistics, 7 th Ed. 2

Logistics Relationships: Types of Relationships n n Vertical n Refer to the traditional links between supply chain members such as retailers, distributors, manufacturers and suppliers. Horizontal n Firms that have parallel or cooperating positions in the supply chain such as a transportation firm and a warehousing firm serving the same customer. Chapter 11 Management of Business Logistics, 7 th Ed. 3

Logistics Relationships: Intensity of Involvement n n Vendor relationship shows little or no integration or collaboration. Strategic alliance shows full integration and collaboration. Partnership shows a customized relationship that results in better outcomes than could be reached separately. Examine Figure 11 -1 on the next slide. Chapter 11 Management of Business Logistics, 7 th Ed. 4

Figure 11 -1 Relationship Perspectives Chapter 11 Management of Business Logistics, 7 th Ed. 5

Logistics Relationships: Intensity of Involvement n Regardless of form, there are numerous ways that the relationships may differ: n Duration n Obligations n Expectations Chapter 11 n n n Interaction and Communication Cooperation Planning Goals Performance analysis Benefits and burdens Management of Business Logistics, 7 th Ed. 6

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Six step process forming and sustaining supply chain relationships: n Step One – Perform strategic assessment n Step Two – Decision to form relationship n Step Three – Evaluate alternatives n Step Four – Select partners n Step Five – Structure operating model n Step Six – Implementation and continuous improvement n (Refer: Fig. 11 -3, Appendix) Chapter 11 Management of Business Logistics, 7 th Ed. 7

Figure 11 -3 Process Model for Forming Logistics Relationships Chapter 11 Management of Business Logistics, 7 th Ed. 8

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step One – Perform strategic assessment n Manufacturer becomes fully aware of its logistics and supply chain needs and overall strategies that will guide its operations. n This step is referred to as a Logistics Audit, and will be covered in Chapter 14. n Time spent at the outset is well spent. Chapter 11 Management of Business Logistics, 7 th Ed. 9

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step Two – Decision to form relationship n When using an external supplier, will the firm’s services be needed. n If the firm has core competencies in the area that external supplier provides, then the firm can provide its own services. n n (Core Competency: What does it take: n 1. Expertise, 2. Strategic Fit, 3. Ability to Invest ) Using channel partners depends on whethere are compelling drivers and facilitators for partnerships are present. Chapter 11 Management of Business Logistics, 7 th Ed. 10

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Drivers might include: n Asset/Cost efficiency n Customer service n Marketing advantage n Profit stability/growth Chapter 11 n Facilitators might include: n Corporate compatibility n Management philosophy and techniques n Mutuality of commitment n Symmetry on key factors such as relative size, financial strength, etc. Management of Business Logistics, 7 th Ed. 11

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step Three – Evaluate alternatives n Measure and weigh drivers and facilitators. n Decide on type of relationship. n Match manufacturer’s needs with capabilities of each potential partner. n Involve other functional managers in the overall selection process. Chapter 11 Management of Business Logistics, 7 th Ed. 12

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step Four – Select partners n Made only after close consideration of the credentials of the most likely candidates. n Interact with and get to know the final candidates on a professionally intimate basis. n Attempt consensus to maximize “buy-in”. Chapter 11 Management of Business Logistics, 7 th Ed. 13

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step Five – Structure operating model n n n n Planning Joint operating controls Communication Risk/Reward sharing Trust and commitment Contract style Scope of the relationship Financial investment Chapter 11 Management of Business Logistics, 7 th Ed. 14

Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships n Step Six – Implementation and continuous improvement (Fig. 11 -5, Appendix) n Depending upon the complexity of the relationship, the implementation period may vary in length. n Future successes will be a direct function of the ability of the partners to achieve both breakthrough and continuous improvement. Chapter 11 Management of Business Logistics, 7 th Ed. 15

Third-Party Logistics: Industry Overview n n n Firms have directed considerable attention to developing supply chain relationships. Many companies have been in the process of extending their logistics organizations into those of other supply chain participants and facilitators. One way of accomplishing this extension is through the use of a supplier of third-party or contract logistics services. 5 Chapter 11 Management of Business Logistics, 7 th Ed. 16

Figure 11 -5 Implementation and Continuous Improvement Chapter 11 Management of Business Logistics, 7 th Ed. 17

Third-Party Logistics (3 PL): Definitions n n 3 PLs are external suppliers that perform all or part of a company’s logistics functions, including: n Transportation n Warehousing n Distribution n Financial services Terms contract logistics and outsourcing are sometimes used in place of 3 PL. Chapter 11 Management of Business Logistics, 7 th Ed. 18

Third-Party Logistics (3 PL): Types of 3 PL Providers n n n Transportation-Based Warehouse/Distribution-Based Forwarder-Based Financial-Based Information-Based Chapter 11 Management of Business Logistics, 7 th Ed. 19

Third-Party Logistics (3 PL): Types of 3 PL Providers n Transportation-Based n Services extend beyond transportation to offer a comprehensive set of logistics offerings. n Leveraged 3 PLs use assets of other firms. n Nonleveraged 3 PLs use assets belonging solely to the parent firm. n Ryder, Schneider Logistics, Fed. Ex Logistics, and UPS Logistics are examples of 3 PLs. Chapter 11 Management of Business Logistics, 7 th Ed. 20

Third-Party Logistics (3 PL): Types of 3 PL Providers n Warehouse/Distribution-Based n Many, but not all, have former warehouse and/or distribution experience. n Transition to integrated logistics has been less complex than for the transportation based providers. n DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3 PLs. Chapter 11 Management of Business Logistics, 7 th Ed. 21

Third-Party Logistics (3 PL): Types of 3 PL Providers n Forwarder-Based n Essentially very independent middlemen extending forwarder roles. n Non-asset owners that capably provide a wide range of logistics services. n AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group are examples of forwarder-based 3 PLs. Chapter 11 Management of Business Logistics, 7 th Ed. 22

Third-Party Logistics (3 PL): Types of 3 PL Providers n Financial-Based n Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracing, and managing inventory. n Cass Information Systems, CTC, GE Information Services, and Fleet. Boston are examples of financial-based 3 PLs. Chapter 11 Management of Business Logistics, 7 th Ed. 23

Third-Party Logistics (3 PL): Types of 3 PL Providers n Information-Based n Significant growth and development in this alternative category of Internet-based, business-to-business, electronic markets for transportation and logistics services. n Transplace and Nistevo are examples of information-based 3 PLs. Chapter 11 Management of Business Logistics, 7 th Ed. 24

A Note on Fourth-Party Logistics (4 PL): The Next Evolution? n n Thought of as supply chain integrator, a firm that “assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver 12 (Fig. a comprehensive supply chain solution. ” 11 -15, Appendix) 4 PLs manage and direct the activities of multiple 3 PLs, serving as an integrator. Chapter 11 Management of Business Logistics, 7 th Ed. 25

Figure 11 -15 Fourth-Party Logistics (Registered Trademark of Accenture, Inc. ) Chapter 11 Management of Business Logistics, 7 th Ed. 26

Need for Collaborative Relationships 13 n n n Supply chain relationships are most effective when collaboration occurs. Collaboration is facilitated by the ability of the supply chain partners to readily access and exchange information over the Internet. Table 11 -5 lists the “Seven Laws of Collaborative Logistics” and is a guide to establishing and maintaining collaborative logistics networks. Chapter 11 Management of Business Logistics, 7 th Ed. 27

Table 11 -5 Seven Laws of Collaborative Logistics Chapter 11 Management of Business Logistics, 7 th Ed. 28